Founded in 1993 by brothers Tom and David Gardner, The Motley Fool is dedicated to making the world smarter, happier, and richer. With offerings including a website, podcasts, books, newspaper columns, radio shows, and premium investing services, The Motley Fool has helped millions of people achieve financial freedom. Billionaires David Tepper, Bill Ackman, and Chris Hohn have allocated a significant portion of their portfolios to Alphabet. While this article presents different opinions from The Motley Fool's premium investing services, becoming a Motley Fool member grants instant access to top analyst recommendations, in-depth research, and invaluable investing resources. To learn more, become a member today. Artificial intelligence (AI) holds the promise of revolutionizing labor productivity by automating various business processes, ranging from clerical work to coding. According to Goldman Sachs, AI could potentially partially automate two-thirds of occupations by 2030, leading to a more than doubling in output by the average knowledge worker, as noted by Ark Invest. The excitement surrounding AI has revitalized investor sentiment, with the S&P 500 experiencing a 19% year-to-date surge, putting the index just 4% away from reaching a record high. This proximity to a bull market is attributed to the AI boom and the confidence it instills in Wall Street hedge fund managers, who are betting big on Alphabet (GOOGL 2. 46%) (GOOG 2. 42%) due to its connection to AI. Among these managers, David Tepper, Bill Ackman, and Chris Hohn have allocated over 10% and 8% of their portfolios, respectively, to Alphabet stock. Given their significant net worth, it can be assumed that these seasoned money managers possess valuable insights into the stock market. Is it a good time to purchase shares of this AI growth stock? Alphabet's growth has slowed down in recent quarters due to economic uncertainty prompting reduced ad spend by businesses. However, the company still managed to surpass Wall Street's consensus estimates on both revenue and net income for the second quarter. A visual breakdown of the income statement is provided in the infographic below. Revenue increased by 7. 1% year over year to $74. 6 billion, driven by outstanding growth in the Google Cloud and Google Other segments. The former includes cloud computing services and enterprise collaboration tools like Google Drive, and the latter consists of YouTube subscriptions and mobile apps sales through the Google Play store. On the bottom line, Generally Accepted Accounting Principles (GAAP) net income rose by 14. 8% year over year to $18. 4 billion, demonstrating the effectiveness of cost control measures and headcount reductions. This positive trend in cost management is expected to continue, as emphasized by CFO Ruth Porat during the earnings call: "We remain very focused on durably reengineering our cost base. " As the world's largest adtech company, Alphabet accounted for nearly 30% of digital ad spend last year, with Google Search and YouTube being the main contributors to its success.

Google Search maintains a dominant market share of over 92% in internet search, while YouTube reigns as the top streaming service in the U. S. based on viewing time. The popularity of these web properties not only establishes Alphabet as a valuable advertising partner but also highlights its expertise in AI. Alphabet relies on evolving and complex AI technologies to enhance Google Search results, YouTube content recommendations, and the performance of Google Ads campaigns. Moreover, Alphabet's product pipeline includes noteworthy innovations such as the implementation of generative AI capabilities to expedite information gathering in Google Search and the launch of generative AI tools for advertisers to streamline campaign creation. Consequently, the company is well-positioned in the adtech market, projected to grow at an annual rate of 13. 7% and reach $2. 4 trillion by 2030. Alphabet also ranks as the third-largest cloud computing company, steadily increasing its market share. In the first quarter, Google Cloud captured 10% of cloud infrastructure and platform services spending, up from 8% and 7% from the previous two years, respectively. This momentum can be attributed to its strength in various areas, including AI infrastructure, conversational AI platforms, and cloud AI developer services. Alphabet is determined to further expand its market share with new AI products, having recently introduced developer tools for building generative AI applications and a digital assistant that incorporates generative AI capabilities into its enterprise collaboration software. These innovations should help Alphabet maintain its momentum in the rapidly growing cloud computing market, forecasted to expand at a compound annual growth rate of 14. 1% and reach $1. 6 trillion by 2030. Lastly, while Alphabet's primary growth drivers relate to adtech and cloud computing, its subsidiary Waymo for autonomous driving and AI research unit DeepMind have the potential to become substantial revenue streams in the future. At the very least, Alphabet's revenue should grow at a rate of 14% annually until the end of the decade, keeping pace with the anticipated growth in adtech and cloud computing sales during the same period. Furthermore, if Alphabet continues to gain market share in the cloud or experiences success in ventures like Waymo and DeepMind, it could potentially achieve even higher growth rates. Currently trading at 5. 9 times sales, slightly below the five-year average of 6. 2 times sales, Alphabet's shares offer an appealing price for potential upside. Therefore, investors may consider acquiring a small position in the company at this time. However, it is not recommended to allocate a substantial portion, such as 10%, or even 5%, of a portfolio to Alphabet, as there are other AI growth stocks available at more affordable valuations. It is also important to note that Suzanne Frey, an executive at Alphabet, serves on The Motley Fool's board of directors, and Trevor Jennewine, the author of this article, does not hold any positions in the mentioned stocks. The Motley Fool has positions in and recommends Alphabet and Goldman Sachs Group, and follows a disclosure policy.