Fahad Saleem
3 min read
In This Article:
Jim Lebenthal, Chief Equity Strategist at Cerity Partners, recently reiterated his bullish take on Alphabet (GOOG) during a program on CNBC and said he believes the company can tackle the challenges it's currently facing.
"It has become a battleground stock. I'm surprised it's become such a battleground stock, but I understand why given the questions that you just listed out, Scott. And I'm clearly answering that I think they're going to meet the competitive threat, that I think they have the intellectual chops with which to do so. And relative to the performance or the relative performance, I see that as an opportunity. I'm very happy with my Amazon, very happy with my Nvidia doing what it's doing right now, and I see the opportunity to add to Alphabet, particularly after the development conference last week where they’re really showing their capabilities. At this multiple, roughly 17 times forward earnings, I could be wrong, but I'm not sure how much downside there is. Famous last words if I am wrong."
The market remains reluctant about Alphabet amid threats to its search business due to the onslaught of AI tools like ChatGPT. However, Alphabet Inc. (NASDAQ:GOOG) bulls believe these concerns are overstated. Google has an edge over competitors because it’s easier for the billions of users of its search engine to switch to Gemini instead of opting for a completely new model. Google has over 1.5 billion monthly users interacting with its AI-powered Search overviews. OpenAI, Alphabet’s biggest competitor now when it comes to AI search, has less than 5% of its users paying, and its business model is still developing. Google’s first-quarter results showed continued strength in its cloud unit, with revenue up 28% year over year and solid operating income growth. This supports Google’s broader AI strategy and underscores the scale advantages of its cloud business.
Artisan Value Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q1 2025 investor letter:
“Among our biggest detractors were PayPal Holdings, Alphabet Inc. (NASDAQ:GOOG) and Merck. Alphabet fell along with other Magnificent Seven stocks following the DeepSeek news, as investors took profits in many of the prior year’s winners. Alphabet continues to perform well, with total revenue up 12% year over year in its most recent quarter, led by growth in Cloud (+30%). However, the company’s capital expenditures guidance for 2025 of $ 75 billion was more than Wall Street was expecting. Alphabet, like other US hyperscalers, is spending huge sums of capex to build out data center capacity to position itself for the large opportunity in AI, and investors want to be sure that these investments will yield good returns. Though the valuations of the Magnificent Seven and other mega-cap technology names are a common discussion point, Alphabet’s valuation had remained relatively stable throughout 2023 and 2024 as its share price gains were powered by underlying earnings growth. Moreover, Alphabet, along with Meta Platforms, the two Magnificent Seven stocks we hold, has been the cheapest of this group. Though valuations remained reasonable, we trimmed our positions in Alphabet and Meta in early January to take advantage of better valuation opportunities. At the end of March, Alphabet sold for just 17X 2025 expected earnings, which is highly attractive, in our view, given the company’s dominant industry positions, cash flow generation and ability to compound value over time.”
