Why Alphabet (GOOGL) Is Proving AI Can Strengthen Its Search Business

Why Alphabet (GOOGL) Is Proving AI Can Strengthen Its Search Business

Fri, August 28, 2026 at 7:42 PM GMT+3 3 min read

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Aristotle Capital Management, LLC, an investment management company, released its "Value Equity Fund" Q2 2026 investor letter. A copy of the letter can be downloaded here. The Fund delivered a 4.32% total return in Q2 2026, underperforming the 13.87% gain for the Russell 1000 Value Index and the 15.20% return for the S&P 500, while its 1.99% year-to-date return also lagged the Russell 1000 Value Index's 16.26% and the S&P 500's 10.21%. The Fund attributed the performance gap largely to limited exposure to the AI infrastructure spending boom, noting that the U.S. has about 4,000 existing data centers and nearly 3,000 more planned or under construction, while AI-related demand has created bottlenecks in processors and memory. The letter highlighted the scale of the cycle, with industry cash flows in key AI hardware areas rising sharply, while the Russell 1000 Value Index's top 10 contributors gained an average 182% year to date and accounted for 9.29 percentage points of the index's 16.23% return. Looking ahead, the fund expects investors to eventually reassess the sustainability of current AI infrastructure earnings and valuations. In addition, please check the Fund's top five holdings to know its best picks in 2026.

In its second-quarter 2026 investor letter, Aristotle Value Equity Fund highlighted stocks like Alphabet Inc. (NASDAQ:GOOGL). Alphabet Inc. (NASDAQ:GOOGL) operates Google Search, YouTube, Google Cloud, and a broad portfolio of digital products and technology businesses. The one-month return of Alphabet Inc. (NASDAQ:GOOGL) was -4.35% while its shares traded between $206.20 and $408.61 over the last 52 weeks. On August 27, 2026, Alphabet Inc. (NASDAQ:GOOGL) stock closed at approximately $342.00 per share, with a market capitalization of about $4.17 trillion.

Aristotle Value Equity Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2026 investor letter:

Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google and YouTube, was a primary contributor during the period. We initiated our position in the first quarter of 2025, when investors were concerned that generative AI tools would fundamentally alter search behavior and erode Google's advertising franchise. Since then, Alphabet has continued to demonstrate the strength of its ecosystem and the resilience of its core businesses. Google Search has remained strong, with AI-powered features increasing user engagement while supporting advertising growth, and Google Cloud has continued to benefit from robust enterprise demand for AI infrastructure and services. Importantly, Alphabet appears increasingly capable of monetizing these new experiences in a manner consistent with its historical strengths, through advertising, distribution, and integration across a broad user base rather than relying solely on paid subscriptions. YouTube also remains well positioned to benefit from continued growth in advertising and subscription revenues, including YouTube TV, as consumers continue to shift away from traditional cable. In addition, while we continue to monitor regulatory risk, capital intensity, and changes in search behavior, recent execution reinforces our view that Alphabet remains a high-quality business with durable competitive advantages and multiple avenues for long-term value creation.

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Alphabet Inc. (NASDAQ:GOOGL) is in 3rd position on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. As per our database, 265 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOGL) at the end of the first quarter, which was 288 in the previous quarter. While we acknowledge the risk and potential of Alphabet Inc. (NASDAQ:GOOGL) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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 thebest short-term AI stock.

In another article, we covered Alphabet Inc. (NASDAQ:GOOGL) and shared our outlook on the company. In addition, please check out our hedge fund investor letters Q1 2026 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.