Forget Nvidia: Here’s a Better Artificial Intelligence (AI) Stock to Buy Right Now

Investors and analysts are excited Nvidia (NVDA -1.59%) these days. The leading designer of artificial intelligence (AI) accelerator chips is one of the most valuable stocks in the world today. At the same time, Nvidia shares have traded sideways since early June, and shares are available at a 17% discount from their all-time high. That’s a recipe for successful investing, right?

But I’m not too excited about Nvidia stock right now. The Titan chip is, at best, a “holdover” idea. I’d rather buy shares of a fellow AI expert Alphabet (GOOG 0.86%) (GOOGL 0.89%) instead.

Here’s why parent Google looks like a stellar investment in September 2024. It’s a tantalizing story in three parts.

Image source: Getty Images.

Chapter 1: The Alphabet was built to last

Remember when Google changed its name to Alphabet? It was a brilliant move by recently recruited CFO Ruth Porat. The Alphabet-branded umbrella organization gave the company free rein to try radically different business ideas without confusing users and investors.

Is Google’s expertise in online search and advertising a natural fit for medical research, self-driving taxis or energy grid management? Maybe not, but it makes sense that one of Google’s sister operations would pursue these goals under the Alphabet name. And they all have access to Google’s computing expertise, global network of data centers and advanced research projects.

Nine years later, Porat moved into the dual role of chairman and chief investment officer, explicitly managing the non-Google pieces of the Alphabet empire. The company structure he created will help Alphabet roll with the punches and thrive in the long term. If I could own one stock forever, it would be this flexible titan of technology.

Chapter 2: Google has been an expert in artificial intelligence for decades already

Alphabet is also in a great position to benefit from the AI ​​boom. This company was developing features and services based on artificial intelligence long before Nvidia and ChatGPT started a generative boom of the AI ​​market. Have you tried any of these Google products, all built on a common AI foundation?

• Google Search: It takes artificial intelligence to find a needle in the haystack online, preferably in less than two seconds per search.
• Google Ads: The ad buying system is based on deep learning analytics, and Google’s personalized ad placement uses multiple types of AI.
• Google Voice: This old system, known as GrandCentral until Google bought the company in 2007, prepared Alphabet’s voice recognition systems from the start. Android’s voice-based controls and dictation got its start thanks to this robust corpus of training data.
• Gmail: The leading email platform lets you send quick replies to incoming emails with an AI-powered button. This feature is powered by the Google Gemini Large Language Model (LLM) these days and that system’s not-so-powerful predecessors.

I’m not even talking about Gemini LLM on its own, nor Google Cloud’s prospects in the market for cloud-based AI systems. Alphabet is one of the first names that came to mind in the AI ​​space, and the influence of AI ranges from the very foundation of Google Search to futuristic experiments we haven’t even heard of yet.

ChatGPT started this booming AI market. The alphabet plays a major role in its development.

Chapter 3: Alphabet stock is very affordable

Despite Alphabet’s close connection to the growing AI sector, its stock isn’t skyrocketing. Nvidia’s stock price is up 766% over the past two years. Microsoft (MSFT -0.78%) gained 78% over the same period, mainly due to its involvement in OpenAI and ChatGPT. But Alphabet only gained 58%, not even keeping up with heavy tech Nasdaq Composite (^IXIC -0.36%) index and its 65% growth over two years.

As a result, Alphabet stock trades at modest valuations. The stock is changing hands at 23 times earnings and 6 times sales, which would be reasonable for a mature, low-growth industrial or retail chain. But Alphabet’s sales are growing at a compound average growth rate (CAGR) of 18% over the past five years. In this light, his valuation ratios seem downright stingy.

Epilogue: Three big advantages add up to a great investment

So Alphabet offers a great trio of investable qualities: long-term stability, deep ties to the continued growth of the AI ​​market, and affordable stock prices. I can’t resist picking up a few more shares of Alphabet under these favorable circumstances, and you should consider doing the same.