Alphabet oversees more than $2.5 billion of invested assets. In the March quarter, it dumped shares of two of its largest holdings and nearly quadrupled its stake in a fast-growing artificial intelligence (AI) stock.
Once every quarter, institutional money managers with more than $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood look at what Wall Street’s brightest investment minds have been buying and selling in the latest quarter. However, 13Fs aren’t just limited to traditional fund managers.
Some of Wall Street’s largest and most-influential companies also invest their capital in businesses they believe can change the world — or at the very least that can make their company and shareholders richer. The nearly $379 billion portfolio Warren Buffett oversees at Berkshire Hathaway serves as a good example.
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One such company that isn’t afraid to put its capital to work in game-changing investment ideas is Alphabet (GOOGL -0.83%) (GOOG -0.86%), the parent company of cloud infrastructure service platform Google Cloud, streaming site YouTube, and globally dominant internet search engine Google. Google has accounted for at least a 90% share of worldwide monthly internet search dating back more than nine years.
Based on Alphabet’s latest 13F filing, it had more than $2.5 billion invested across 43 companies in the technology, healthcare, and financial sectors. What’s of particular interest is that Alphabet pared down its holdings in two of its largest hypergrowth companies, while absolutely piling into a rising superstar in the artificial intelligence (AI) arena.
Alphabet reduces its stake in CrowdStrike Holdings by a third
Perhaps the biggest surprise of Alphabet’s investment chess moves during the March-ended quarter is that it reduced its stake in cybersecurity specialist CrowdStrike Holdings (CRWD -1.12%) by exactly one third (it sold 427,894 shares). Whereas CrowdStrike comprised more than 15% of invested assets at the end of 2023, it now accounts for just shy of 11% of Alphabet’s investments.
The logical reason for this selling activity is very likely valuation. Even factoring in CrowdStrike’s annual sales growth rate of nearly 30%, the company is valued at close to 17 times forecast revenue for next year, and trades at more than 70 times forward-year consensus earnings. Considering that the stock market is historically pricey at the moment, any correction could hit companies with high valuation premiums, like CrowdStrike, the hardest.
But beyond valuation, there’s no reason to sell this cream-of-the-crop cybersecurity solutions provider.
CrowdStrike’s superior growth rate is all thanks to Falcon, which is its AI and machine learning-driven security platform. Falcon oversees trillions of events each week, which continually make it smarter and more adept at identifying and stopping potential threats to end users.
Though pretty much every key performance indicator for CrowdStrike is moving in the right direction, add-on sales tell the story best. CrowdStrike offers 27 cloud modules on its Falcon platform, and 64% of its clients have purchased at least five of these cloud-module subscriptions. Thanks to existing clients continually upping their spending, CrowdStrike’s adjusted subscription gross margin reached 80% in its latest quarter.
Lastly, don’t forget that CrowdStrike and Alphabet’s Google Cloud have an existing strategic partnership in place. Though 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 found in Alphabet’s 13F is that it sold a little over 51% of its prior stake (1,891,112 shares sold) in medical-device company DexCom (DXCM -0.24%). Though DexCom was Alphabet’s largest investment holding at the end of 2023, comprising 21.2% of invested assets, it’s now fallen to third in the pecking order at 9.9% of invested assets.
Similar to CrowdStrike, valuation might have been the impetus that had Alphabet’s investment team pressing the sell button. Despite sustained annual sales growth of near 20%, this maker of continuous glucose monitoring systems (CGMs) is valued at 10 times consensus sales for 2025 and roughly 58 times forward-year earnings per share (EPS).
Furthermore, there have concerns that glucagon-like peptide-1 (GLP-1) agonist drugs could adversely affect the need for CGMs. However, DexCom has alleviated these concerns by pointing to studies that show 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 worldwide with diabetes more than tripled to 537 million. By 2045, IDF Diabetes Atlas predicts 783 million people globally will be diabetic. The addressable market for CGMs keeps expanding, which gives DexCom a seemingly unlimited double-digit growth runway.
Innovation has played a key role in DexCom’s success, too. The company has developed multiple generations of CGMs, and made regular improvements to its devices that allow for wireless readings and the seamless sharing of vital data with primary-care physicians.
Additionally, Alphabet’s life sciences division (known as Verily) and DexCom have been partners for nine years. This collaborative partnership is unlikely to end anytime soon.
Image source: Getty Images.
The parent of Google makes GitLab its largest position
With DexCom removed from its pedestal as Alphabet’s largest holding, and CrowdStrike staying put in the No. 2 slot, it’s development, security, and operations (DevSecOps) software developer GitLab (GTLB -1.25%) that’s now taken the crown in Alphabet’s more than $2.5 billion investment portfolio. Alphabet purchased over 7.11 million shares of GitLab in the March-ended quarter, which increased its previous stake in the company by about 269%!
GitLab’s DevSecOps platform helps businesses throughout the software development lifecycle. The key aspect of GitLab’s platform is the automated integration of security throughout this development and implementation process.
What might be particularly attractive for Alphabet is the role artificial intelligence could play in growing GitLab’s top-and-bottom line. A perfect example being the introduction of AI capabilities within GitLab Duo Pro. These features include coding suggestions, which can be particularly useful for large language models, as well as Duo Chat, which can generate and process text to identity useful information.
From an operating standpoint, GitLab appears to be firing on all cylinders. The company is profitable on an adjusted basis and generating positive free cash flow. Further, Wall Street is forecasting sales growth of at least 25% in the current and upcoming year, which is to be expected with a dollar-based net retention rate of 130%. This figure shows that existing clients are spending 30% more on a year-over-year basis with GitLab.
The keep with the common theme of this list, Alphabet’s Google Cloud has an ongoing partnership with GitLab. The latter is providing AI-driven solutions that allow Google Cloud to more quickly and securely roll out solutions to its customers.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, CrowdStrike, and GitLab. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
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