Missed the Nvidia run-up? The best AI stock to buy and own.

If you look up “artificial intelligence” (AI) in the dictionary, you might only see a picture of Nvidia logo. Just kidding, obviously, but there’s no denying that this business was the clear poster child for this revolutionary tech trend.

This AI infrastructure company was a monster winner. The stock is up 2,560% over the past five years, crushing the broads Nasdaq Composite Index by an incredibly wide margin. This means that a $10,000 investment in September 2019 would be worth $266,000 today.

You might be disheartened if you missed the Nvidia race. But maybe it’s time to take a closer look at what I think is the best AI stock right now.

Nvidia’s impressive round

Some investors may think that Nvidia’s huge earnings are justified. The business sells graphics processing units (GPU) needed to power many AI systems. And as companies of all sizes try to position their operations to integrate AI, Nvidia has been the biggest beneficiary.

According to research from Mizuho Stocks, Nvidia has between 70% and 95% market share for the chips that power AI models. Unsurprisingly, the growth has been incredible. Revenue rose 122% from $13.5 billion in the year-ago period to $30 billion in the second fiscal quarter of 2025 (ended July 28).

Nvidia is also extremely profitable, posting a 75% gross margin and 62% operating margin in the last fiscal quarter. It’s no surprise that the market has become incredibly bullish and optimistic about Nvidia’s prospects. This is now a $2.7 trillion enterprise.

However, at the time of writing, the shares are trading at a price-earnings ratio (P/E) of 52. This makes it the second most expensive Magnificent Seven stock, which is not an attractive proposition for investors.

The enviable position of the alphabet

Nvidia is getting all the attention when it comes to AI stocks, but investors should be watching Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). I think it is the best AI stock to buy and own.

In 2001, the company was already using machine learning and artificial intelligence capabilities in its powerful search engine, helping users to spell. And even before OpenAI’s launch of ChatGPT in November 2022 sparked the AI ​​boom, this technology was developed and integrated into various Alphabet products and services, such as providing traffic data in Maps, making it easier to find photos by searching what’s in them and spam prevention in Gmail.

CEO Sundar Pichai positioned the business to be “AI first” in 2016. These days, AI is undoubtedly a part of Alphabet’s current DNA. To be clear, the company’s AI’s first steps weren’t the easiest. But its Gemini AI model works.

The story continues

“All six of our products, with more than 2 billion monthly users, now use Gemini. This means that Google is the company that truly brings AI to everyone,” Pichai said. The Q2 2024 earnings call.

Alphabet has unmatched reach to continue introducing AI features for near-instant adoption. This allows for rapid feedback, which only helps to constantly improve offerings and strengthen Alphabet’s competitive positioning.

And the business has virtually unlimited financial resources. It generated $54 billion in annualized free cash flow in the second quarter. And Alphabet currently has a massive net cash balance of $87.5 billion, giving it the leverage to continue investing heavily in AI.

While Nvidia’s valuation is steep, that’s not really a concern in this case. Alphabet stock trades for a reasonable P/E ratio of 23. Investors shouldn’t overthink it. Alphabet has long been a dominant force in the Internet age. And I see this continuing for years to come, especially in a world where AI becomes more pervasive.

Should you invest $1,000 in Alphabet right now?

Before buying shares in Alphabet, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now…and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $656,938!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of September 3, 2024

Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.

Missed the Nvidia run-up? The best AI stock to buy and own. was originally published by The Motley Fool