Cloud Slowdown and Regulatory Challenges Impacted Alphabet's (GOOG) Performance in Q1

Fidelity Investments, an investment management company, recently released its “Fidelity Dividend Growth Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. Fidelity Dividend Growth Fund is a diversified domestic equity strategy with a focus on large-cap core. The portfolio invests in large and mid-cap firms with potential for sustainable dividend growth. The fund’s Retail Class shares gained -5.29% in the first quarter, underperforming the -4.27% return of the benchmark S&P 500 index. In the first quarter, the post-election anticipation was replaced by investor concerns regarding the impacts of several actions from the new administration, disruptions to government programs, and rising uncertainty caused by changing policy priorities, particularly in trade tariffs. In addition, you can check the fund’s top 5 holdings to know its best picks in 2025.

In its first-quarter 2025 investor letter, Fidelity Dividend Growth Fund 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 0.91%, and its shares lost 4.90% of their value over the last 52 weeks. On June 26, 2025, Alphabet Inc. (NASDAQ:GOOG) stock closed at $174.43 per share, with a market capitalization of $2.111 trillion.

Fidelity Dividend Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q1 2025 investor letter:

"An outsized stake in Alphabet Inc. (NASDAQ:GOOG) detracted as well. The shares returned-18% for the quarter, falling beginning in early February, as the advertising giant and parent of the Google search engine announced quarterly revenue that reflected a slowdown in sales at its cloud-computing and device businesses. Investors were hoping strength in cloud computing would ease the impact of recent weakness in the company's core advertising business. Meanwhile, management said it is meaningfully accelerating investments in data centers that power artificial intelligence. Alphabet also faces regulatory pressure, including a recently opened antitrust probe from the Chinese government."

Alphabet Inc. (NASDAQ:GOOG) is in 7th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 164 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the first quarter which was 174 in the previous quarter. In the first quarter of 2025, Alphabet Inc. (NASDAQ: GOOG) achieved a revenue of $90.2 billion, representing an increase of 12% from Q1 2024. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered Alphabet Inc. (NASDAQ:GOOG) and shared the list of best long term growth stocks to invest in. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of NOW 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.

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