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Here are the 2 growth stocks that Google’s parent company just added to its $7 billion portfolio
When Google restructured its business as Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) separated its Other Bets segment from its core Google operations. While many investors are familiar with some of these other bets, such as Waymo (autonomous vehicles) and Verily (life sciences), the segment also includes a $7 billion investment fund called CapitalG.
CapitalG is a venture capital fund focused on growth-stage companies. Not only does it provide these companies with a cash infusion in the form of equity investment, but it also gives them access to Google’s expertise. This can be a huge advantage for a young company, and CapitalG has seen 16 of the companies it has invested in make a IPO.
In addition to CapitalG, Alphabet holds investments in 43 publicly traded companies, which accounted for about $2.5 billion in its investment holdings at the end of last quarter, according to SEC filings. And there are two publicly traded growth stocks that the fund added last quarter that might be worth a closer look.
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1. GitLab
Alphabet gave a substantial boost to its shareholding in GitLab (NASDAQ: GTLB) last quarter, increasing its total share count by 269%. It is now by far Alphabet’s largest public holding, totaling approximately $550 million in value.
GitLab is a code repository management platform similar to Microsoftfrom GitHub. It integrates numerous software development tools and makes code maintenance, issue tracking, and security easy to keep all of your company’s code private.
GitLab offers its services to individuals for free, but charges for premium features or enterprise accounts. It has more than 30 million users and 1 million users with an active license.
The free tier is essential to its land and expand strategy, which has worked well. It produced a dollar-based net retention rate of 130% in the fourth quarter, meaning existing customers spent about 30% more on its services in the last quarter than they did a year ago. The number of customers spending more than $1 million per year rose to 96, a 52% increase year over year. Both helped increase its revenue by 33% in the fourth quarter.
But management disappointed Wall Street with its guidance for fiscal 2025. The company expects revenue of between $725 million and $731 million, resulting in earnings per share of $0.19 to $0.23. These numbers were below analysts’ expectations and sent the stock price down in March.
The stock’s valuation is high no matter how you slice it. This makes the action risky. But with strong revenue growth, extremely high gross margins and demonstrable operating leverage in the business, it could quickly grow profits. Analysts covering the stock expect annual growth of 38% over the next five years. Although it is a somewhat risky investment, you will have good company in Alphabet if you decide to add it to your portfolio.
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2. Primordial Medicine
Alphabet is one of the largest outside investors in Primordial Medicine (NASDAQ: PRME), and increased its number of shares in the company last quarter by 27%. Alphabet’s 15 million shares give it a 12.55% stake in the biotechnology company.
Prime Medicine focuses on gene editing therapies. It recently received FDA clearance to begin a phase 1/2 study of its treatment for chronic granulomatous disease. It has several other treatments in the lead discovery or optimization part of the development pipeline.
As such, Prime Medicine is pre-revenue and investors are heavily focused on its cash burn rate and its balance sheet. After offering additional shares to the public in February, the company ended the quarter with $210.7 million in cash and cash equivalents on its balance sheet. It holds an additional $13.5 million in restricted cash.
In the last four quarters, cash burn totaled approximately US$200.6 million. Furthermore, that number is increasing as research and development expenses related to new therapies in development increase. Unfortunately, Prime Medicine will likely burn through all of its existing cash before its chronic granulomatous therapy reaches the market. This means it will have to raise money again, probably by issuing new shares, given the current cost of debt.
Prime Medicine could produce some innovative treatments with its gene editing process, but its finances are very precarious. This makes it a very risky investment that can have many advantages but equally disadvantages. Be mindful of your allocation if you decide to follow Alphabet and buy shares around the current price.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Adam Levy has positions at Alphabet and Microsoft. The Motley Fool has positions and recommends Alphabet, GitLab and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The motley fool has a disclosure policy.
Here are the 2 growth stocks that Google’s parent company just added to its $7 billion portfolio was originally published by The Motley Fool