Google Parent Alphabet Is Selling Shares of 2 Hypergrowth Stocks and Piling Into a Promising Artificial Intelligence (AI) Company

Google Parent Alphabet Is Selling Shares of 2 Hypergrowth Stocks and Piling Into a Promising Artificial Intelligence (AI) Company

Once a quarter, institutional fund managers with more than $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides insight into what Wall Street’s brightest investors bought and sold over the past quarter. However, 13Fs are not limited to traditional fund managers.

Some of the largest and most influential companies on Wall Street also invest their capital in companies they believe can change the world – or, at the very least, make their company and their shareholders richer. The nearly $379 billion portfolio Warren Buffett oversees Berkshire Hathaway serves as a good example.

Google Parent Alphabet Is Selling Shares of 2 Hypergrowth Stocks and Piling Into a Promising Artificial Intelligence (AI) Company

Image source: Getty Images.

One such company that isn’t afraid to put its capital toward groundbreaking investment ideas is Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), the parent company of the cloud infrastructure services platform Google Cloud, the streaming site YouTube and the globally dominant Internet search engine, Google. Google has accounted for at least 90% of monthly Internet searches worldwide for more than nine years.

According to Alphabet’s latest 13F filing, more than $2.5 billion has been invested in 43 companies across the technology, healthcare and financial sectors. What’s particularly interesting is that Alphabet reduced its stakes in two of its largest hypergrowth companies, while piling on a rising industry superstar. artificial intelligence (AI) arena.

Alphabet reduces its stake in CrowdStrike Holdings by a third

Perhaps the biggest surprise from Alphabet’s investments in the quarter ended March was the reduction in its stake in the cybersecurity specialist. CrowdStrike Titles (NASDAQ:CRWD) by exactly a third (she sold 427,894 shares). While CrowdStrike represented more than 15% of invested assets at the end of 2023, it now represents just under 11% of Alphabet’s investments.

The logical reason for this selling activity is most likely valuation. Even accounting for CrowdStrike’s annual sales growth rate of nearly 30%, the company is valued at nearly 17 times next year’s forecast revenue and trades at more than 70 times consensus earnings for the year. coming year. Given that the stock market is historically expensive right now, any correction could hit companies with high valuation premiums, like CrowdStrike, hardest.

But beyond the valuation, there is no reason to sell this high-end cybersecurity solutions provider.

CrowdStrike’s superior growth rate is due to Falcon, its AI and machine learning-based security platform. Falcon monitors billions of events every week, making it continually smarter and better at identifying and stopping potential threats to end users.

While almost all of CrowdStrike’s KPIs are trending in the right direction, it’s add-on sales that tell the story best. CrowdStrike offers 27 cloud modules on its Falcon platform, and 64% of its customers have purchased at least five of these cloud module subscriptions. Thanks to existing customers continually increasing their spending, CrowdStrike’s subscription-adjusted gross margin reached 80% in its most recent quarter.

Finally, don’t forget that Alphabet’s CrowdStrike and Google Cloud already have a strategic partnership in place. Although Alphabet is selling CrowdStrike stock, the two companies continue to work together.

Alphabet cut its position in DexCom by more than half

The other big surprise from Alphabet’s 13F is that it sold just over 51% of its previous stake (1,891,112 shares sold) in a medical device company. DexCom (NASDAQ:DXCM). Although DexCom is Alphabet’s largest holding at the end of 2023, accounting for 21.2% of invested assets, it has now fallen to third in the pecking order with 9.9% of invested assets.

Like CrowdStrike, the valuation could have been the impetus that pushed Alphabet’s investment team to hit the sell button. Despite sustained annual sales growth of nearly 20%, this manufacturer of continuous glucose monitoring (CGM) systems is valued at 10 times consensus sales for 2025 and approximately 58 times earnings per share (EPS) for year to come.

Additionally, there is concern that glucagon-like peptide-1 (GLP-1) agonist medications could have a negative effect on the need for CGM. However, DexCom alleviated these concerns by pointing to studies showing that GLP-1 users are more likely to use their CGMs.

The most important factor in DexCom’s favor is time. Between 2000 and 2021, the number of people with diabetes worldwide more than tripled to 537 million. By 2045, the IDF Diabetes Atlas predicts that 783 million people worldwide will have diabetes. The addressable market for CGMs continues to grow, giving DexCom seemingly unlimited double-digit growth runway.

Innovation has also played a key role in DexCom’s success. The company has developed several generations of CGMs and made regular improvements to its devices that enable wireless readings and seamless sharing of vital data with primary care physicians.

Additionally, Alphabet’s life sciences division (known as Verily) and DexCom have been partners for nine years. This collaborative partnership is unlikely to end any time soon.

A hologram of a rapidly rising candlestick stock chart coming from the right palm of a humanoid robot.A hologram of a rapidly rising candlestick stock chart coming from the right palm of a humanoid robot.

Image source: Getty Images.

Google parent company makes GitLab its largest position

With DexCom removed from its pedestal as Alphabet’s largest holding company and CrowdStrike remaining in second place, its development, security and operations (DevSecOps) software developer GitLab (NASDAQ:GTLB) it’s now the crown of Alphabet’s more than $2.5 billion investment portfolio. Alphabet purchased over 7.11 million shares of GitLab in the quarter ended March, increasing its previous stake in the company by approximately 269%!

GitLab’s DevSecOps platform helps businesses throughout the software development lifecycle. The key aspect of the GitLab platform is the automated integration of security throughout this development and implementation process.

What could be of particular interest to Alphabet is the role that artificial intelligence could play in driving GitLab’s revenue and revenue growth. A perfect example being the introduction of AI capabilities in GitLab Duo Pro. These features include coding suggestions, which can be particularly useful for large language models, as well as Duo Chat, which can generate and process text to identify useful information.

From an operational standpoint, GitLab appears to be running at full capacity. The company is profitable on an adjusted basis and generates positive free cash flow. Additionally, Wall Street expects sales growth of at least 25% for the current year and the coming year, which is normal with a net dollar retention rate of 130%. This figure shows that existing customers are spending 30% more year-over-year with GitLab.

Keeping with the common theme of this list, Alphabet’s Google Cloud has an ongoing partnership with GitLab. The latter provides AI-powered solutions that enable Google Cloud to deploy solutions more quickly and securely to its customers.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet. The Motley Fool holds positions and recommends Alphabet, Berkshire Hathaway, CrowdStrike and GitLab. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.

Google Parent Alphabet Sells Shares of 2 Hypergrowth Stocks, Piles Into Promising Artificial Intelligence (AI) Company was originally published by The Motley Fool

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