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BILLIONAIRES LOVE THIS TECH STOCK. BUT WILL IT CONTINUE ITS REIGN IN 2025?

By James Brumley – Dec 25, 2024 at 6:45AM

Key Points

 * Google Cloud’s recent swing to operating profitably marks a major turning
   point for the business.
 * Although not a front-runner of the AI chatbot movement, Google’s Gemini is
   quickly catching up with its rivals.
 * The global search-advertising industry may be mature, but it’s still got
   several more years of double-digit growth ahead.
 * 10 stocks we like better than Alphabet


NASDAQ: GOOGL


ALPHABET



Market Cap
$2,360B

Today's Change
Arrow-Thin-Down
(-1.45%) -$2.84
Current Price
$192.76
Price as of December 27, 2024, 4:00 p.m. ET


Several major hedge fund managers are seeing potential that most investors have
yet to fully realize.

Just because a bunch of billionaires all own the same stock doesn't necessarily
make it a great pick your portfolio. Everyone's goals and risk tolerances are
different, after all.

On the other hand, billionaires are billionaires for a reason. Maybe it wouldn't
be wrong to at least explore one of the names they all agree is worth owning --
particularly one that's performing well.

With that as the backdrop, here's a deeper dive into a favorite technology stock
among billionaires right now. It probably would be a smart pick for anyone
looking for relatively low-risk growth. Even after a great 2024, there's room
for continued upside in the year ahead.


TWO-THIRDS OF BILLIONAIRES AGREE

The billionaires in question, by the way, are mostly hedge fund managers, and
The Motley Fool's research arm dug into 16 of the industry's biggest funds to
determine each one's tech holdings. The predictable names, including Nvidia,
Meta Platforms, and Microsoft, are of course among the more common holdings.
Alphabet (GOOG -1.55%) (GOOGL -1.45%) is a leading favorite, held by more than
two-thirds of these hedge funds.

And these stock-pickers have been well-rewarded for sticking with Google's
parent company following a rough 2022. Shares are on track for a gain of 40%
this year   following 2023's advance of nearly 60%, and that's despite threats
of a Department of Justice-sought breakup.


Arrows-In Collapse



NASDAQ: GOOGL

Alphabet
Today's Change
(-1.45%) -$2.84
Current Price
$192.76
Arrow-Thin-Down
YTD1w1m3m6m1y 5y
+188.88%
Price VS S&P
GOOGL


KEY DATA POINTS

Market Cap
$2,360B
Day's Range
$190.65 - $195.32
52wk Range
$130.66 - $201.42
Volume
18,878,904
Avg Vol
27,517,732
Gross Margin
57.89%
Dividend Yield
0.31%

The problem? That kind of rally can be a tough act to follow. And analysts don't
expect it to. The current consensus price target of $210.79 is only about 9%
above the stock's present value, and that modest apparent upside is enough to
steer some would-be buyers clear.

This is a case, however, where investors as well as the analyst community may be
underestimating the degree of growth that's likely to be in store in the year
ahead. Three specific factors are subtly working in the stock's favor.


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3 REASONS ALPHABET STOCK COULD SHINE IN 2025

It's mostly business as usual for Alphabet right now. And as usual, business is
good. Last quarter's top line improved 15% year over year, driving even greater
operating income growth. The solid results extend a pace of progress that's been
under way since the fallout from the COVID-19 pandemic was finally curbed a year
ago. Analysts believe more of the same is in store for the foreseeable future.

There are a handful of bullish factors at work here, however, that aren't yet
fully reflected in Alphabet stock's price.



1. Cloud computing's profits are about to soar

Google's cloud computing business has been around for years now. But it's only
recently swung to a profit. There's still much more profit growth ahead, though,
now that this business has turned the corner. Presuming Google Cloud achieves an
operating margin comparable to Microsoft's and Amazon's cloud business, Google
Cloud could contribute as much as $16 billion worth of annual operating income
at its current level of sales. Should Alphabet continue growing this business,
the prospective upside of this business's potential bottom line is even bigger.

Data source: Alphabet. 

For perspective, Alphabet's currently reporting roughly $100 billion worth of
operating income per year.

2. It's gaining ground in AI chat



It remains to be seen exactly how well artificial intelligence-powered chat
platforms such as ChatGPT, Microsoft's Copilot, or Google's Gemini will be
monetized. Whatever the long-term plan and business model is, however, Alphabet
is making progress against other AI chat platforms. Numbers from Statista
indicate that Gemini's share of the United States' artificial intelligence
chatbot usage increased from 13% to 27% between last year and now, putting it
within reach of ChatGPT's leading share of 31%. First Page Sage, an SEO and
thought leadership company, adds that on a worldwide basis, Google's Gemini was
also the fastest-growing AI chat tool among the three major ones during the
three-month stretch ending in November, with its share improving by 9%.

To whatever extent it will matter in 2025 and beyond, Alphabet's clearly making
inroads on the artificial intelligence front.

3. Alphabet's core search business still has many years of double-digit growth
ahead

Finally, while cloud computing and AI are solid ancillary businesses, Alphabet's
breadwinning profit center remains search, where Google still dominates. Data
from GlobalStats says Google still facilitates 90% of the world's web searches,
while Google's search business alone makes up more than half of the parent
company's sales. It stands to reason that search accounts for at least a
comparable amount of its income.



And this matters more than you might think. Although the search engine market is
seemingly mature as well as saturated, it's far from stagnation. Research
outfits SkyQuest and Business Research Insights agree that the
search-advertising industry is poised to grow at an average annualized pace of
11% through 2032.

The introduction of AI to search results is a key driver of this growth.


BE PATIENT WITH ALPHABET, WHETHER BUYING OR HOLDING

None of this is to suggest Alphabet stock is going to keep climbing at its
current pace without interruption in the coming year. Indeed, with the stock up
30% just since September's low, there's an argument to be made that at least a
small correction is in the near-term cards. It wouldn't be wrong to wait just a
little while longer to see if you can get a slightly better entry price.

More than that, though, bear in mind that all of these are long-term tailwinds,
just as Alphabet stock itself is best utilized as a long-term position. Alphabet
shares have managed to remain strangely unpredictable in the short run, meaning
it wouldn't exactly wrong to dive in now rather than wait for a dip.



Whatever the case, one thing that matters far less than it seems to at this
point is the DOJ's efforts to force Alphabet to sell off its Chrome web browser
to a third party, which is perhaps the most damaging of all the remedies the DOJ
is proposing. While this is nothing to shrug off, Google has a knack for
offsetting and working around such disruptions.

The sale of Chrome could also put around $20 billion -- and maybe a bit more --
in Alphabet's pocket. Although this isn't chump change, it's a modest amount
compared to the company's market cap of $2.4 trillion, suggesting Chrome isn't
quite the linchpin of Alphabet's business it's being made out to be. Google can
find other ways to steer people to its revenue-bearing services.


SHOULD YOU INVEST $1,000 IN ALPHABET RIGHT NOW?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are
the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them.
The 10 stocks that made the cut could produce monster returns in the coming
years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000
at the time of our recommendation, you’d have $857,565!*

Now, it’s worth noting Stock Advisor’s total average return is 922% — a
market-crushing outperformance compared to 176% for the S&P 500.

Don’t let others invest while you stand on the sidelines.

See the 10 stocks



*Stock Advisor returns as of December 23, 2024





John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member
of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet,
is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former
director of market development and spokeswoman for Facebook and sister to Meta
Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of
directors. James Brumley has positions in Alphabet. The Motley Fool has
positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and
Nvidia. The Motley Fool recommends the following options: long January 2026 $395
calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley
Fool has a disclosure policy.


THIS TECH COULD BE WORTH 23 NVIDIAS

This tech could reach 80 trillion. Imagine a technology worth over 23 Nvidias.

What in the world could be worth 23 Nvidias? The answer is a radical tech
breakthrough that our experts think is transforming every walk of life. And this
giant leap forward has many on Wall Street very excited.

Learn more ›

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History Says the Nasdaq Will Surge in 2025: 1 AI Stock to Buy Before It Does
(Hint: It's Not Nvidia)
My Surprising Top "Magnificent Seven" Stock Pick for 2025
922%
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