Alphabet (GOOG -1.46%) (GOOGL -1.60%) has become one of the most popular artificial intelligence (AI) investments among major hedge funds. It was one of the last stocks that legendary CEO Warren Buffett bought at Berkshire Hathaway (BRKA +0.17%) (BRKB +0.01%), and the firm is still purchasing more shares of it even after he retired from that role. David Tepper, who runs Appaloosa Management, also loaded up on Alphabet shares during the last quarter, and the position now makes up nearly 9% of his firm's portfolio.
Those are some major players confidently investing in Alphabet, despite its strong performance over the past year (it's up over 65%). I think there's a good chance that it can go higher from here, as it's one of the top big tech stocks available on the market.
Image source: The Motley Fool.
Alphabet's growth phase is just beginning
Alphabet is benefiting from AI in a handful of ways. First, it has successfully implemented AI into some of its legacy products, including Google Search and YouTube. Just over a year ago, both of these segments were potential victims of AI. With Alphabet embracing and incorporating AI feature sets, they have evolved to become even more dominant. During Q2, Google Search's revenue rose 17% year over year, while YouTube ads increased by 13%. Those are solid growth figures for legacy business units, and showcase that Alphabet can successfully integrate AI into most of its products.
NASDAQ: GOOGL
Key Data Points
The biggest area where AI is boosting Alphabet's financials is its Google Cloud division. Alphabet's cloud computing wing is seeing major growth, but at a huge cost. When you hear about Alphabet having capital expenditures bills of $200 billion or greater in 2026, this is where the majority of the money is being spent. However, investors are seeing early signs of this paying off.
In Q2, Google Cloud's revenue increased by 82% year over year. That's an incredible growth rate, and helped boost Alphabet's overall growth rate to 24%. Alphabet is growing at its fastest pace in years, and with Google Cloud slated to continue growing at a rapid pace over the next few years, right now could be the start of a major expansion in Alphabet's business.
Alphabet's stock is also reasonably priced, trading at 28 times operating earnings.
GOOG Operating PE Ratio data by YCharts
While I usually would use net income to value a stock like Alphabet's, its current price-to-earnings (P/E) ratio is skewed by a handful of one-time gains on investments. From this perspective, Alphabet is trading around its average valuation over the past 15 years.
I think Alphabet is a great stock to buy at these levels; an investor should consider following the smart money like Berkshire Hathaway and David Tepper and scoop up shares.
