Alphabet's (GOOG) AI Initiatives Driving Strong Growth

Wedgewood Partners, an investment management company, released its third-quarter 2025 investor letter. The letter is available for download here.  AI stocks remain the favorite topic of Wall Street in the third quarter. In the third quarter, Wedgewood Composite’s net return was 5.9% compared to the Standard & Poor’s 8.1%, the Russell 1000 Growth Index’s 10.5%, and the Russell 1000 Value Index’s 5.3% return for the same period. In addition, you can check the fund’s best 5 holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, Wedgewood Partners highlighted stocks such as Alphabet Inc. (NASDAQ:GOOG). Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services operating through Google Services, Google Cloud, and Other Bets segments. The one-month return of Alphabet Inc. (NASDAQ:GOOG) was -0.40%, and its shares gained 50.67% of their value over the last 52 weeks. On October 21, 2025, Alphabet Inc. (NASDAQ:GOOG) stock closed at $251.34 per share, with a market capitalization of $3.07 billion.

Wedgewood Partners stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its third quarter 2025 investor letter:

"Alphabet Inc. (NASDAQ:GOOG) was a top contributor to portfolio performance during the quarter, as the Company's AI initiatives are driving strong growth in their advertising and cloud computing businesses. Furthermore, the U.S. Department of Justice proposed final remedies on Google's online search monopoly that were less severe than Wall Street's worst-case scenarios. This development allowed the forward earnings multiple to expand, bringing it more in line with the overall stock market. Alphabet's core Google search business saw a +12% increase in revenues, thanks in part to its relatively new search results page feature, "AI Overviews," which reaches over 2 billion users.

AI queries place tremendous strain on computing infrastructure, as we have heard from private AI-labs, particularly OpenAI. It is therefore a remarkable achievement that Alphabet, a company at the forefront of AI hardware and software development for over a decade, possesses the infrastructure to seamlessly roll out such an indispensable service to its users, while putting up record returns on invested capital for shareholders. For example, Alphabet carried a cumulative $300 billion of gross property plant and equipment, plus capitalized leases, at the end of 2024, up almost $170 billion from five years earlier. Remarkably still, the Company now generates over $115 billion in annual gross cash lows, up from $48 billion five years ago. Alphabet has long been able to convert massive capex spending into highly attractive cash low returns. This is one of the primary proof points as to why we are confident that not all large AI industry capex spending budgets necessarily will lead to over spending. But, again, Alphabet has had many years’ head-start to build this data center capacity relative to the current, still unprofitable "neo-clouds" and emerging AI labs."

Alphabet Inc. (NASDAQ:GOOG) is in the 7th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 178 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter which was 164 in the previous quarter. In the second quarter of 2025, Alphabet Inc. (NASDAQ: GOOG) achieved a revenue of $96.4 billion, representing an increase of 14% compared to Q2 2024. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Alphabet Inc. (NASDAQ:GOOG) and shared the list of AI stocks making moves on Wall Street. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.