We recently published a list of Cathie Wood’s 11 Favorite AI Stocks. With Alphabet Inc. (NASDAQ:GOOG) ranking 9th on the list, the company deserves a closer look.
Cathie Wood‘s flagship fund continues to struggle with steep losses amid a broader decline in technology stocks. Wood’s flagship fund, the ARK Innovation ETF (NYSEARCA:ARKK), is down about 18% so far this year and has lost about 75% of its value since its 2021 peak. However, the latest data shows the innovation-focused investor has been buying into tech stocks following the recent sell-off that rocked financial markets around the world.
Investors have pulled about $2.2 billion out of ARK funds in 2024. The fund is on track to have its worst year of investor flight since 2014. But Cathie Wood is doubling down on her bets on innovation and is confident that the upcoming rate cuts will have a positive impact on the stock market.
Cathie Wood says: “Something is changing” and the Fed is now on “high alert”
Regarding the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent sell-off shows that the market is going through a “cathartic” phase and “something is changing.”
“I think the Fed is on high alert now because the stock market seems to be encouraging the Fed to keep interest rates higher for longer and get inflation out of the system.”
Cathie Wood said that with interest rates high, companies are now in a weaker position and are initiating layoffs to cut costs and increase productivity. This weak employment situation could prompt the Federal Reserve to start cutting interest rates, Wood said.
“Falling interest rates should have a very positive impact on equity markets, but they will not end a recession very quickly. If consumers and businesses actually know that interest rates and perhaps prices are going to fall, what will they do? They will wait and see.”
Cathie Wood’s ARK has released its latest stock holdings data as of the end of the June quarter. For this article, we scanned the fund’s latest portfolio and selected 11 AI stocks in which it holds positions. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
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Alphabet Inc Class C (NASDAQ:GOOG)
Cathie Wood’s current share value: $23,359,454
Alphabet Inc Class C (NASDAQ:GOOG) shares recently fell following reports that OpenAI is working on a web search product called SearchGPT. Previously, the stock fell despite strong numbers following the earnings release. Second-quarter revenue grew 14% year-over-year, driven by search and cloud. At a forward P/E ratio of 22, analysts believe Alphabet Inc Class C (NASDAQ:GOOG) remains one of the cheapest AI stocks on the market as the valuation remains low amid fears of overreaction.
Despite constant alarms about its search business, Alphabet Inc Class C (NASDAQ:GOOG)’s search revenue grew by about 13.7% year-on-year in the second quarter. At the end of June, Google had a market share of about 91.06% in the search engine market, only 1.65% less than in December 2019. With AI insights and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to fend off any competitors given its market dominance.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. In the second quarter, Alphabet’s cloud revenue rose 28.8% to $10.35 billion, beating analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on track to generate $100 billion in revenue from YouTube Ads and Google Cloud by the end of 2024.
The London Company Large Cap Strategy commented on Alphabet Inc. (NASDAQ:GOOG) in its Investor letter Q2 2024:
“Alphabet Inc. (NASDAQ:GOOG) – GOOG was a top performer this quarter as it reported strong search revenue, tighter cost controls and momentum in the cloud. Both direct and branded search ads were better than expected and strength in YouTube monetization continues. Cost controls have led to margin improvement of 700 basis points. Management is removing layers to improve efficiency, which should boost margins. GOOG also provided details on ways to monetize AI for advertisers. GOOG introduced a dividend during the quarter to return additional cash to shareholders. The company has a solid balance sheet, significant market share and is generating strong returns.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 9th on Insider Monkey’s list of the title Cathie Wood’s 11 Favorite AI Stocks. While we recognize the potential of Alphabet Inc. (NASDAQ:GOOG), we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than GOOG but worth less than five times its earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
