When it comes to investing in stocks, there are typically no right or wrong investments aside from those that lose money. Deciding what stocks work for you should depend on your risk tolerance, investment goals, and time horizon, and those can vary widely by person.
Billionaires (particularly those who made their money via investments) have different financial resources than the average investor, but that doesn't mean the latter shouldn't look to the former for investment inspiration. After analyzing the hedge funds of 16 prominent billionaire investors, The Motley Fool found that one company appeared frequently in their top holdings: Alphabet (GOOG 1.06%) (GOOGL 1.08%).
Given that fact and its recent stock price surge, is now the time to add Alphabet to your portfolio? I believe so.
A small AI setback for a huge AI comeback
Since the release of OpenAI's ChatGPT, AI has been inescapable in the tech world. The success of ChatGPT and other generative AI tools has increased expectations and cast doubt on Alphabet's ability to commercialize its AI innovations, but the company is responsible for pioneering many of the AI breakthroughs being witnessed today. Its open-source machine learning library, TensorFlow, is the foundation for much of the current AI research and development.
Alphabet has experienced some questionable AI blunders, like its chatbot Bard returning wrong answers in a promotional ad and its Gemini image generator being paused because of historically inaccurate pictures. But those don't diminish the company's innovations and importance to the field.
AI depends heavily on the data that trains it, and few companies (if any) have as much relevant data as Alphabet. With decades of data from Google search, YouTube, and its family of companies, Alphabet has all the tools it needs to be a force in AI. In the latest earnings call, its CEO said the company had "the best infrastructure for the AI era."
Improvement in Alphabet's advertising and cloud businesses
Advertising revenue is the foundation of Alphabet's cash machine, and its recent quarter should reassure investors who had concerns about Meta or TikTok chipping away at its core business.
Google advertising revenue was more than $61.6 billion in the first quarter, up 13% year over year. That was around 76% of Alphabet's $80.5 billion in revenue but less than it accounted for in past quarters, showing other segments have begun carrying more of their own weight.
GOOGL revenue (quarterly) data by YCharts.
Google Cloud, in particular, has seen significant recent growth. Although it still lags behind Amazon Web Services (AWS) and Microsoft's Azure in market share, Google Cloud's 28% year-over-year revenue growth is a positive sign. This momentum should continue as Alphabet begins integrating AI capabilities into the platform.
Investors shouldn't expect Google Cloud to overthrow AWS or Azure as go-to platforms, but it has shown it can be a profitable and growing business segment for Alphabet.
Investors can expect to receive value outside of stock price movements
Alphabet has been great at returning shareholder value regardless of its stock price. Over the past five years, it has averaged close to $11.5 billion in quarterly stock buybacks, which is partly why its earnings per share (EPS) are up over 130% during that span. Its recent $70 billion stock buyback authorization should continue this, too.
GOOGL stock buybacks (quarterly) data by YCharts.
In addition, Alphabet announced the company's first-ever dividend in its latest earnings, joining the likes of other big tech colleagues like Microsoft, Apple, and, most recently, Meta.
The quarterly dividend is $0.20, with a yield well under 1%. That probably doesn't make it a screaming buy for income-seeking investors, but it's a nice addition to a stock that has more than tripled the S&P 500's returns over the past decade.
Couple that with Alphabet being one of the better values among "Magnificent Seven" stocks (as measured by its price-to-earnings ratio), and investors will likely look back years from now and wish they had taken advantage of the stock at this price.
