Google’s parent company Alphabet was an investor favorite among tech stocks, but one portfolio manager said he now avoids the company. “We’ve been big fans of Alphabet’s Google for years, but with the introduction of AI, I think SearchGPT has become a direct competitor to Google’s search business,” said Jordan Tsvetanovsky of Sydney-based Pella Funds, adding that the company’s advertising business is also under threat. SearchGPT is a prototype developed by Microsoft-backed OpenAI that combines traditional search engine features with generative AI. Appearing on CNBC’s “Street Signs Asia” on Monday, Tsvetanovsky, founder, chief investment officer and portfolio manager at Pella Funds, said Alphabet appears to have “failed on AI for the last few years.” The challenge for the company is clear, as many users access Google’s search engine through Apple devices, but OpenAI said in June that it would integrate ChatGPT into Apple products as part of a new partnership. “We are also wondering how that will play out. Even if[Google]manages to fend off some of these threats, I think costs will go up. So there is a question mark on the company’s profitability going forward,” Czwetanovski added. Another concern he has is the possibility of the company being broken up in the future and how to respond if that happens. “There are a lot of question marks around Google. It’s been going strong for the past few years. At this stage, the valuation is not really cheap for us to cover these risks. So, after so many years, we have decided to get out of the company,” Czwetanovski added. His comments came after Alphabet’s second-quarter earnings, which were in line with Wall Street expectations, showed earnings of $1.89 per share (versus $1.84 expected) and revenue of $84.74 billion (versus $84.19 billion expected). Alphabet’s shares have risen about 13% year-to-date and trade at about 20.6 times expected earnings, according to FactSet data. Unlike Tsvetanovsky, the majority of analysts remain bullish on the stock. Of the 64 analysts covering the stock, 50 give it a buy or overweight rating, while only 14 give it a hold rating, according to FactSet data. The average analyst target price is $203.13, which gives it 28.5% upside potential. “Core Investments” Besides Alphabet, Tsvetanovsky is also bullish on other tech stocks, naming Nvidia, Vertiv, ASML, Taiwan Semiconductor Manufacturing, and Schneider Electric as “core investments.” On Nvidia, the chief investment officer said the chipmaker “will remain at the forefront of the industry” and will benefit from a wave of investments in hardware. The artificial intelligence darling continues to attract attention, with its shares up more than 135% year to date, despite a roughly 10% drop over the past three months. NVDA YTD NVIDIA shares YTD Tsvetanovsky said there is a “fair amount of concentration” in the stock, noting how the market reacts whenever there is news about the chipmaker. “A lot depends on Nvidia’s performance…If Nvidia fails, that could cause problems for the market in the short term,” he added. Still, Tsvetanovsky says the stock has a “very attractive opportunity.” “When you look at the Nvidia chart, it certainly worries me, but you really have to think about what’s underlying that valuation,” he said. Nvidia trades for more than 41 times expected earnings, according to FactSet data. Of the 63 analysts covering the stock, 59 give it a buy or overweight rating, and only four give it a hold rating. The average analyst target price is $149.49, which gives it room for 28% upside, according to FactSet data. “Nvidia is the stock to watch because it will drive capital flows and it will drive the market in the short term, but I think in the medium term it’ll be fine,” Tsvetanovsky added. —CNBC’s Jennifer Elias contributed to this report.
CIO reveals tech stocks he plans to sell: Alphabet, Nvidia, and more
By NvidiaDaily
