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.
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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.
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 (NASDAQ: GOOG)(NASDAQ: GOOGL) 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.
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.
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.
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.
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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.
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