Alphabet's recent stock performance reveals a challenging period, marked by a notable underperformance against the Nasdaq 100 index and a key competitor, Meta. This divergence is largely attributed to decelerated advertising growth and a more cautious approach to capital expenditure, which could exert pressure on future earnings. However, the impressive growth and expanding margins of Google Cloud stand out as a significant positive. The substantial investments in artificial intelligence infrastructure, while leading to increased depreciation, signal a long-term strategic focus. Despite these factors, the current valuation of Alphabet appears to be notably conservative, indicating a potential undervaluation in the market.
Amidst a shifting market landscape, investors are closely scrutinizing Alphabet's strategic maneuvers, particularly its capital allocation and AI monetization efforts. The contrasting capital expenditure strategies between Alphabet and Meta highlight different growth priorities and potential future returns. While Meta pursues an aggressive spending plan, Alphabet's more measured approach, though impacting near-term earnings through higher depreciation, could foster more sustainable long-term growth. The ongoing evolution of AI monetization in the advertising sector remains a critical area, with its pace directly influencing revenue streams and market sentiment. Understanding these dynamics is essential for evaluating Alphabet’s future trajectory and its ability to unlock further value for shareholders.
Navigating Market Headwinds: Advertising Growth and Capital Expenditure
Alphabet's recent stock performance has been impacted by a slowdown in advertising growth, a crucial revenue driver for the company. This deceleration, coupled with a relatively subdued outlook on capital expenditures compared to rivals like Meta, has contributed to a notable underperformance in the market. The cautious approach to capital spending, particularly in the context of burgeoning AI infrastructure, will inevitably result in increased depreciation and amortization expenses. This financial dynamic is anticipated to weigh on Alphabet's earnings in the upcoming quarters, potentially limiting the pace of future capital deployment. Consequently, the market has observed a valuation disparity, with Alphabet's shares trading at a more modest multiple than some of its high-growth counterparts.
The competitive landscape in the technology sector is intense, particularly in advertising and AI development. While Alphabet is diligently working towards monetizing its AI investments, the process has been more gradual than initially anticipated. This measured pace contrasts with some competitors who have demonstrated more rapid commercialization of AI in their core businesses. The differing capital expenditure strategies between Alphabet and Meta are particularly striking; Meta's more aggressive investment in future-oriented projects, as reflected in a higher percentage of revenue allocated to capex, suggests a bolder push for growth. This divergence in spending philosophy not only influences short-term earnings projections but also shapes investor perception regarding long-term growth potential and market leadership in key technological domains.
Strategic Strengths and Valuation Insights: Google Cloud and Undervaluation
Despite the challenges in advertising, Google Cloud remains a significant success story for Alphabet, showcasing robust growth and consistent margin expansion. This segment's strong performance underscores Alphabet's diversified business model and its ability to innovate and capture market share in competitive sectors beyond traditional advertising. The strategic importance of Google Cloud extends beyond its direct revenue contribution; it also serves as a critical platform for developing and deploying advanced AI capabilities across Alphabet's ecosystem. The continued investment in this area is a testament to the company's commitment to leveraging cloud computing and artificial intelligence for future growth. Furthermore, the company's current valuation, characterized by a forward non-GAAP P/E of 19x, signals a potential undervaluation, suggesting that the market may not be fully appreciating its long-term prospects.
The market's current assessment of Alphabet's valuation presents an intriguing paradox. While the stock has experienced recent underperformance, its forward earnings multiple has not expanded over the past five years, suggesting that its growth potential is not fully reflected in its share price. This situation implies that the stock remains deeply undervalued, particularly given the strengths of Google Cloud and the company's ongoing advancements in AI. The long-term implications of these investments are substantial, as they are expected to drive future revenue streams and enhance operational efficiencies. As AI monetization progresses and its benefits become more evident, there is a strong possibility that the market will re-evaluate Alphabet's intrinsic worth, leading to a potential re-rating of its stock. This makes Alphabet an attractive proposition for investors seeking a leading technology company with significant untapped value.
Unlocking Value: The Resurgence of International and Emerging Markets
\nA New Dawn for Global Investments: International and Emerging Markets' Early 2025 Rally
\nThe year 2025 has marked a significant upturn for international equities and even fixed-income assets, indicating a fresh wave of momentum. Notably, emerging markets are exhibiting signs of a potential forward trajectory, signaling a shift in global investment dynamics.
\nEMXC's Remarkable Recovery: Retesting Pre-Crisis Levels and Beyond
\nThe iShares MSCI Emerging Market ex-China ETF, identified by its ticker EMXC, recently matched its previous peak of $63.74 from June 10th, 2021, closing at $63.70 on July 18th, 2025. This resurgence suggests a renewed confidence in these markets, pushing them towards pre-crisis valuations.
\nThe Lingering Shadows of 2008: A Decade and a Half of Modest Gains
\nThe global financial crisis of 2008 significantly impacted both international and emerging market performance, leading to a prolonged period of subdued returns. For approximately 15 years, investors in non-U.S. asset classes have experienced predominantly single-digit annual returns, reflecting a challenging investment landscape.
\nUnderappreciated Potential: Why International and EM Markets Still Offer Growth
\nDespite past performance, international and emerging markets continue to be seen as underappreciated and underinvested asset classes. Their current low valuations and nascent growth signals present a compelling opportunity for investors seeking diversification and long-term capital appreciation, challenging the prevailing sentiment of caution that has dominated since the financial crisis.
The Oakmark Global Select Fund's Investor Share Class experienced a demanding second quarter in 2025, falling short of its benchmark, the MSCI World Index, both during the quarter and since its establishment. This period saw mixed results across sectors, with financials and industrials demonstrating strength, while healthcare and energy faced headwinds. Geographically, the fund maintains a significant concentration in the U.S., complemented by substantial allocations in Europe and the U.K. Amidst market fluctuations influenced by external factors, the fund strategically adjusted its holdings, introducing new positions in key companies across diverse industries. This tactical recalibration reflects a commitment to enhancing long-term value despite immediate market challenges, underscoring a dynamic investment approach.
This quarter's activity was notably higher than usual, spurred by significant market volatility. The fund's management capitalized on these shifts by reducing exposure to strong performers and increasing investments in companies where market perception had created substantial discounts relative to their intrinsic value. This proactive portfolio management led to the acquisition of four new companies and the divestment of three existing holdings, aiming to position the fund for optimal future returns. These adjustments highlight the fund's adaptable strategy, focusing on intrinsic value and long-term growth opportunities, even in an unpredictable economic climate.
Navigating Market Dynamics and Strategic Adjustments
In the second quarter of 2025, the Oakmark Global Select Fund, specifically its Investor Share Class, faced an uphill battle, trailing behind the MSCI World Index for both the recent quarter and its entire operational history. Sector-wise, the fund saw its fortunes buoyed by robust performances in the financial and industrial sectors. Conversely, the healthcare and energy segments acted as performance inhibitors, contributing negatively to the overall results. From a geographical standpoint, the fund's portfolio is predominantly invested in the United States, accounting for over 60% of its assets. A quarter of its investments are in Europe, excluding the U.K., with a smaller portion allocated to the U.K. itself. During this period, certain European markets like France, the Netherlands, and Germany emerged as strong relative performers, contrasting with the underperformance observed in the U.S., China, and the U.K.
The quarter was marked by an elevated level of portfolio activity, largely attributed to the pronounced market volatility following significant global announcements. This environment presented unique opportunities for the fund to realign its holdings. The investment team made calculated decisions to trim or divest positions in companies that had performed strongly, concurrently acquiring shares in businesses whose valuations had become particularly attractive due to perceived impacts from external policies. These strategic maneuvers led to the addition of four new companies to the fund's diverse portfolio: Becton, Dickinson and Company; BMW; BNP Paribas; and DSV. These new acquisitions replaced three previously held positions, reflecting a dynamic and forward-looking approach to optimizing long-term returns amidst fluctuating market conditions.
Key New Investments and Core Holdings' Performance
Among the top performers for the quarter, Bayer stood out as a significant contributor, thanks to its robust first-quarter results that surpassed expectations, especially in its pharmaceutical division. This positive momentum was further bolstered by the anticipation of a favorable Supreme Court decision regarding the company's litigation, signaling potential relief from legal uncertainties. In contrast, IQVIA Holdings emerged as a primary detractor, with its stock price facing downward pressure from concerns over potential drug price controls, tariffs, and government budget cuts. Despite these challenges, IQVIA's contract research organization segment demonstrated resilience, and its technology and analytics solutions performed commendably, underscoring the company's underlying strength and long-term viability, especially given its attractive valuation and management's increased share repurchases.
The fund's strategic new investments are poised to capitalize on various industry trends and undervalued assets. Becton, Dickinson and Company, a global leader in medical technology, was added due to its strong market position, innovation, and attractive valuation, despite temporary headwinds in the healthcare sector. BMW, a premium automotive manufacturer, represents a bet on strong brand equity, strategic management, and a favorable position in the growing electric vehicle market, offering long-term potential amidst trade policy concerns. BNP Paribas, one of the world's largest banks, was included for its diversified operations, solid deposit franchise, and potential for profitable growth, particularly benefiting from a falling interest rate environment. Lastly, DSV, a logistics powerhouse, was chosen for its exceptional management, industry-leading profit margins, and the strategic advantages gained from its recent acquisition, promising continued shareholder value creation through disciplined acquisitions and integration.