Once a quarter, institutional money managers with more than $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. A 13F offers an under-the-hood look at what Wall Street’s brightest investing minds bought and sold last quarter. However, 13Fs are not just limited to traditional fund managers.
Some of Wall Street’s largest and most influential firms are also investing their capital in companies they believe can change the world – or at least make their companies and shareholders richer. The nearly $379 billion portfolio that Warren Buffett oversees Berkshire Hathaway serves as a good example.
One such company that isn’t afraid to put its capital to work on groundbreaking investment ideas is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company of cloud infrastructure service platform Google Cloud, streaming site YouTube and the globally dominant Internet search engine Google. Google has been responsible for at least 90% of global monthly Internet searches for more than nine years.
Based on Alphabet’s latest 13F filing, it had invested more than $2.5 billion in 43 companies across the technology, healthcare and financial sectors. Of particular note, Alphabet has pared its stakes in two of its largest hyper-growth companies while absolutely evolving into a rising artificial intelligence (AI) superstar.
Alphabet reduces its stake in CrowdStrike Holdings by a third
Perhaps the biggest surprise from Alphabet’s investment moves during the quarter ending in March is that it cut its stake in the cybersecurity specialist. CrowdStrike Holdings (NASDAQ: CRWD) by exactly a third (it sold 427,894 shares). While CrowdStrike accounted for more than 15% of invested assets at the end of 2023, it now accounts for only 11% of Alphabet’s investments.
The logical reason for this selling activity is most likely the valuation. Even taking into account CrowdStrike’s annual revenue growth of nearly 30%, the company is valued at nearly 17 times next year’s expected revenue, and trades at more than 70 times next year’s consensus earnings. Given that the stock market is historically pricey right now, any correction could hit companies with high valuation premiums like CrowdStrike the hardest.
But valuation aside, there’s no reason to sell this leading cybersecurity solutions provider.
CrowdStrike’s superior growth rate is all thanks to Falcon, its AI and machine learning-powered security platform. Falcon monitors trillions of events every week, continually becoming smarter and more adept at identifying and stopping potential threats to end users.
While virtually every key performance indicator for CrowdStrike is moving in the right direction, add-on sales tell the best story. CrowdStrike offers 27 cloud modules on its Falcon platform and 64% of its customers have purchased at least five of these cloud module subscriptions. Thanks to existing customers who continually increased their spend, CrowdStrike’s adjusted gross margin reached 80% in the last quarter.
Finally, don’t forget that CrowdStrike and Alphabet’s Google Cloud have an existing strategic partnership. Although Alphabet is a seller of CrowdStrike stock, the two companies continue to work together.
Alphabet more than halved its position in DexCom
The other big surprise in Alphabet’s 13F is that it sold just over 51% of its previous stake (1,891,112 shares sold) in the medical device company. DexCom (NASDAQ: DXCM). Although DexCom was Alphabet’s largest investment holding company at the end of 2023, accounting for 21.2% of invested assets, it has now fallen to third place in the pecking order with 9.9% of invested assets.
As with CrowdStrike, the valuation could have been the impetus that pushed Alphabet’s investment team to hit the sell button. Despite sustained annual sales growth of nearly 20%, this maker of continuous glucose monitoring systems (CGMs) is valued at 10 times consensus 2025 sales and about 58 times earnings per share (EPS) for the coming year.
In addition, there are concerns that glucagon-like peptide-1 (GLP-1) agonists may negatively impact the need for CGMs. However, DexCom has allayed these concerns by pointing to studies showing that GLP-1 users are more likely to use their CGMs.
The biggest factor working in DexCom’s favor is time. Between 2000 and 2021, the number of people with diabetes worldwide more than tripled to 537 million. By 2045, the IDF Diabetes Atlas predicts that 783 million people worldwide will have diabetes. The addressable market for CGMs continues to grow, giving DexCom a seemingly unlimited double-digit growth runway.
Innovation has also played a key role in DexCom’s success. The company has developed multiple generations of CGMs and has made regular improvements to its devices that enable wireless measurements and seamless sharing of vital data with primary care physicians.
In addition, Alphabet’s life sciences division (known as Verily) and DexCom have been partners for nine years. It is unlikely that this collaboration will end anytime soon.
Google’s parent company makes GitLab its largest position
Now that DexCom has been removed from its pedestal as Alphabet’s largest holding company and CrowdStrike remains at No. 2, it is the software development, security and operations (DevSecOps) developer. GitLab (NASDAQ:GTLB) that has now taken the crown in Alphabet’s investment portfolio of more than 2.5 billion dollars. Alphabet bought over 7.11 million shares of GitLab in the quarter ending in March, increasing its previous stake in the company by approximately 269%!
GitLab’s DevSecOps platform helps companies throughout the software development lifecycle. The most important aspect of the GitLab platform is the automated integration of security during this development and deployment process.
What could be especially attractive to Alphabet is the role artificial intelligence could play in growing GitLab’s top and bottom lines. A perfect example of this is the introduction of AI capabilities within GitLab Duo Pro. These features include coding suggestions, which can be especially useful for large language models, as well as Duo Chat, which can generate and process text to identify useful information.
From an operational perspective, GitLab seems to be firing on all cylinders. The company is profitable on an adjusted basis and generates positive free cash flow. Furthermore, Wall Street is forecasting revenue growth of at least 25% for the current and next year, which is to be expected with a dollar-based net retention rate of 130%. This figure shows that existing customers are spending 30% more on GitLab annually.
Keeping with the common theme of this list, Alphabet’s Google Cloud has an ongoing partnership with GitLab. The latter offers AI-driven solutions that allow Google Cloud to roll out solutions to its customers faster and more securely.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Alphabet. The Motley Fool holds positions in and recommends Alphabet, Berkshire Hathaway, CrowdStrike, and GitLab. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
Google Parent Alphabet sells shares of two hyper-growth stocks, builds into promising artificial intelligence (AI) company was originally published by The Motley Fool
