Nvidia vs. Alphabet: Fund manager reveals which to hold, and which to sell
Google-parent Alphabet has long been an investor favorite among tech stocks, but one portfolio manager says he’s now steering clear. “We’ve been big fans of Alphabet’s Google now for many years. However, we think with the introduction of AI, SearchGPT has become a direct competitor to Google[‘s] search business,” Jordan Cvetanovski, from Sydney-headquartered Pella Funds, said, adding that its advertising business is also under threat. SearchGPT is a prototype developed by the Microsoft -backed OpenAI which combines traditional features of a search engine with generative AI. Speaking to CNBC’s “Street Signs Asia” on Monday, Cvetanovski, Pella Funds’ founder, chief investment officer and portfolio manager, said that Alphabet had seemingly “dropped the ball on AI over the years.” He foresees challenges for the company as many users access Google’s search engine through Apple devices, but OpenAI announced in June that it would be integrating ChatGPT into Apple products as part of a new partnership. “We’re wondering how that kind of plays out as well, and even if [Google] were able to fend off some of these threats, we think the cost will go up. So then there’s question marks about the margins of the company going forward,” Cvetanovski added. Another concern he has is a potential break-up of the company in the future — and what that would entail if it happens. “There’s considerable question marks over Google. It’s done well over the last several years. The valuation is really not cheap to cover these risks at this stage for us … So, after many years, we’ve decided to exit this company,” Cvetanovski added. His comments come even as Alphabet’s second-quarter results met Wall Street’s expectations with earnings per share coming in at $1.89 — compared to $1.84 expected — while revenue was $84.74 billion, vs. $84.19 billion penciled. Shares in Alphabet are up around 13% year-to-date and trade around 20.6 times forward earnings, according to FactSet data. GOOGL YTD mountain Year-to-date shares in Alphabet Unlike Cvetanovski, the majority of analysts remain bullish on the stock. According to FactSet data, of the 64 analysts covering the stock, 50 give it a buy or overweight rating, while just 14 have a hold rating. Analysts’ average price target is $203.13, giving it 28.5% potential upside. ‘Core investments’ Beyond Alphabet, Cvetanovski remains bullish on other tech stocks, naming Nvidia , Vertiv , ASML , Taiwan Semiconductor Manufacturing Co and Schneider Electric as his “core investments.” Touching on Nvidia, the chief investment officer said the chipmaker will “continue to be at the forefront” of the industry, and benefit from an investment wave into hardware. The artificial intelligence darling continues to make headlines, with the stock up over 135% over the year to date, despite falling around 10% over the last three months. NVDA YTD mountain Year-to-date shares in Nvidia There is “a lot of concentration” in the stock, Cvetanovski said, and flagged how markets are now reacting whenever there’s news pertaining to the chipmaker. “There’s a lot kind of riding on how well Nvidia does … If Nvidia does slip up, it could bring trouble for markets in the short-term,” he added. Still, Cvetanovski says the stock has some “very attractive opportunities.” “If you look at the chart of Nvidia, [it] does make you concerned, but you really have to think about what’s underlying that kind of valuation,” he said. Nvidia is trading at over 41 times forward earnings, according to FactSet data. Of the 63 analysts covering the stock, 59 give it a buy or overweight rating, while just four have a hold rating. Analysts’ average price target is $149.49, giving it 28% potential upside, FactSet data shows. “Nvidia is one to watch, and that will drive flow, and it will drive the markets in the short term, but medium term, I think it’s looking okay,” Cvetanovski added. — CNBC’s Jennifer Elias contributed to this report.
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