Strong Growth in Google Services Lifted Alphabet (GOOG)

Wedgewood Partners, an investment management company, released its fourth-quarter 2025 investor letter. The firm anticipates stronger market volatility in the coming years and has moderated its enthusiasm. A copy of the letter can be downloaded here. The Wedgewood Composite returned -1.8% (net) in the fourth quarter compared to the S&P 500’s 2.7%, the Russell 1000 Growth Index’s 1.1%, and the Russell 1000 Value Index’s 3.8% returns. YTD, the Composite gained 4.3% compared to 17.9%, 18.6%, and 15.9% returns for the indexes, respectively. Wedgewood Partners’ focus on high-quality stocks has historically worked since 1992, but not in 2025. The letter highlighted poor stock selection, the portfolio’s strong past performers due for valuation correction, and being structurally underweight in AI stocks drove the underperformance. The letter noted that in 2026, crowded AI investments and stretched valuations create pressure on prudent investment decisions.  In addition, you can check the Fund’s top 5 holdings to determine its best picks for 2025.

 In its fourth-quarter 2025 investor letter, Wedgewood Partners highlighted Alphabet Inc. (NASDAQ:GOOG). Alphabet Inc. (NASDAQ:GOOG) stood out as the leading performer of the strategy in the quarter. Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services operating through Google Services, Google Cloud, and Other Bets segments. On January 16, 2026, Alphabet Inc. (NASDAQ:GOOG) stock closed at $330.34 per share. One-month return of Alphabet Inc. (NASDAQ:GOOG) was 7.04%, and its shares gained 67.22% of their value over the last 52 weeks. Alphabet Inc. (NASDAQ:GOOG) has a market capitalization of $3.988 trillion.

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

"Alphabet Inc. (NASDAQ:GOOG) continued to make significant contributions to performance during the quarter. The Company's Google subsidiary reported that search revenues accelerated to +15% growth compared to a year ago. Google user query growth related to AI Overviews, along with automated ad creative services, helped drive this revenue growth. The Google Cloud segment revenue and backlog growth also accelerated, driven by AI workloads. Google Cloud processes 1.3 quadrillion - that is: 1,300 x 1 trillion - AI tokens per month, more than double from just a few quarters ago and many multiples more than some of its largest cloud competitors. Alphabet's long history of developing proprietary IT hardware and software will continue to help compound its profitability leadership during the AI era."

Alphabet Inc. (NASDAQ:GOOG) is in the 7th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 186 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the third quarter which was 178 in the previous quarter. In the third quarter of 2025, Alphabet Inc. (NASDAQ: GOOG) achieved its first-ever $100 billion in revenue. 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 best strong buy growth stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q4 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.