Wedgewood Partners, an investment management firm, has issued its investor letter for the fourth quarter of 2025. The letter states the firm expects increased market volatility in future years and has tempered its outlook. The Wedgewood Composite returned -1.8% net in the fourth quarter. This compares to gains of 2.7% for the S&P 500, 1.1% for the Russell 1000 Growth Index, and 3.8% for the Russell 1000 Value Index. Year-to-date, the Composite is up 4.3%, while the indexes returned 17.9%, 18.6%, and 15.9% respectively.
While the firm's focus on high-quality stocks has been successful since 1992, it did not perform well in 2025. The letter attributes the underperformance to poor stock selection, valuation corrections for past strong performers, and being structurally underweight in AI stocks. It notes that crowded AI investments and stretched valuations in 2026 will pressure prudent investment decisions.
The letter specifically highlighted Alphabet Inc. (NASDAQ:GOOG) as the leading performer for the quarter. Alphabet, Google's parent company, closed at $330.34 per share on January 16, 2026. Its one-month return was 7.04%, and it gained 67.22% over the last 52 weeks. The company's market capitalization is $3.988 trillion.
Regarding Alphabet, Wedgewood Partners stated: "Alphabet Inc. (NASDAQ:GOOG) continued to make significant contributions to performance during the quarter. The Company's Google subsidiary reported that search revenues accelerated to +15% growth compared to a year ago. Google user query growth related to AI Overviews, along with automated ad creative services, helped drive this revenue growth. The Google Cloud segment revenue and backlog growth also accelerated, driven by AI workloads. Google Cloud processes 1.3 quadrillion - that is: 1,300 x 1 trillion - AI tokens per month, more than double from just a few quarters ago and many multiples more than some of its largest cloud competitors. Alphabet's long history of developing proprietary IT hardware and software will continue to help compound its profitability leadership during the AI era."
Alphabet Inc. ranks 7th on a list of 30 Most Popular Stocks Among Hedge Funds. According to database information, 186 hedge fund portfolios held the stock at the end of the third quarter, up from 178 the previous quarter. In the third quarter of 2025, Alphabet achieved its first-ever $100 billion in revenue.