Alphabet's 63% cloud surge drives Oakmark fund returns
Harris Oakmark highlighted Alphabet as its top Q2 performer, crediting AI-powered monetization in search and a 63% cloud revenue surge for driving the stock's 91.5% annual gain.
Alphabet was the top contributor to the Harris Oakmark Equity and Income Fund in the second quarter, according to a recent investor letter. The fund manager attributed the tech giant's outperformance to accelerating search revenue and a massive surge in cloud demand driven by artificial intelligence.
Google Cloud results beat expectations by a wide margin, with revenue growing 63% year-over-year. Oakmark noted that significant demand for AI compute capacity drove a near doubling of the cloud unit's backlog compared to the prior quarter. This infrastructure build-out signals sustained enterprise spending on AI capabilities.
On the advertising side, Alphabet is successfully integrating AI to improve its core business. The firm reported that AI Overviews and AI Mode are driving healthy user engagement growth. Simultaneously, AI-powered advertiser tools are translating that engagement into higher monetization rates, a critical metric for financial markets tracking the return on tech AI investments.
Alphabet shares closed at $350.67 on July 13, reflecting a $4.28 trillion market capitalization. The stock has surged 91.52% over the past 52 weeks, though it experienced a recent one-month pullback of 5.51%. "We continue to find Alphabet attractive on a sum-of-the parts basis and see its leadership in artificial intelligence as creating upside opportunities across its business segments," Oakmark stated.
The strong performance from Alphabet provided a buffer for the Oakmark fund during a quarter where its overall equity returns lagged the broader market. The fund's equity portfolio returned 6.84% in the second quarter, compared to a 15.20% rally in the S&P 500 Index. Meanwhile, its fixed-income allocation outperformed, returning 1.13% versus the Bloomberg U.S. Aggregate Bond Index's 0.67%.
This performance gap underscores a narrow market leadership environment where investors heavily favored perceived direct beneficiaries of AI spending. Oakmark, which held 60.1% in equities, 38.9% in fixed income, and 1.0% in cash, maintained its value-oriented discipline. The firm explicitly stated it will continue to own undervalued companies rather than chasing the market's most popular themes.
