There is perhaps no single company that represents the boom in artificial intelligence (AI) better Nvidia (NASDAQ: NVDA). The thriving chipmaker is currently firing on all cylinders. And it has rewarded its shareholders in remarkable ways.
I’m sure you’re looking for ways to gain exposure to the ongoing AI trend. Perhaps it’s best to forget about Nvidia, though. Consider buying these other ones instead »Beautiful seven“stock instead.
High expectations for Nvidia
Nvidia once again impressed investors with a fantastic financial report. During the three-month period ending April 28 (Q1 2025), the company revealed that revenue shot up 262% year over year to $26 billion. Operating profit was even more impressive, up 690%.
Demand for Nvidia’s chips is as robust as ever, especially in the data center segment. Looking ahead, executives expect sales to reach $28 billion in the current fiscal quarter. While that would mean a quarter-over-quarter and year-over-year slowdown, it would still represent tremendous growth for the company.
Unsurprisingly, the hype for Nvidia also continues to rise as the market remains enamored with AI-focused companies. Stock trading with a nosebleed price-to-sales (P/S) ratio of 35.9, which indicates how high investor expectations are. Nvidia seems to be priced for perfection at the moment.
Investors looking to buy Nvidia stock today probably aren’t too happy about missing out on the stock’s monumental rise. This may be a bold statement, but at this point I think it’s a perfect example of people chasing returns, which is not a smart investment strategy.
Dominant internet company
It’s hard to tell investors to ignore one of the hottest stocks on the market. But there is one company that is seeing strong results and is already a leader in AI. I’m talking about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). The $2.2 trillion company has been a big winner for shareholders and is poised to continue that trend.
Despite generating a significant $307 billion in revenue last year, Wall Street consensus analysts estimate that revenue should grow at a compound annual rate of 11.5% between 2023 and 2026. That growth will come from greater use of Alphabet’s numerous products and services. which will help generate more digital advertising revenue. This is where AI will help.
Sundar Pichai, the CEO of Alphabet, proclaimed in 2016 that the world would move from mobile to an AI-first focus. This kind of thinking put the company early on at the forefront of this emerging technology.
Alphabet has such a huge user base, with six products used by at least 2 billion people, that it is effortless to deliver new AI features with near-instant mass adoption. Some of the most well-known services, such as Photos, Maps, Gmail and YouTube, have long used AI in some form.
And when it comes to Google Cloud, there are more opportunities to make a bigger impact. As the third largest player in the industry, with first quarter revenue of $9.6 billion, this segment is becoming a mission-critical technology infrastructure partner for its customer base. Customers can use a wide range of tools, such as generative AImachine learning and speech and text functions, to build their own applications.
Understandably, investors are attracted to new companies or stocks to ride the momentum toward quick profits. But with AI, this dominant internet company appears to be well-positioned to take advantage. Alphabet has virtually unlimited financial resources, as evidenced by $108 billion in cash, cash equivalents and marketable securities, to aggressively invest in servers and network infrastructure to strengthen its position in the AI ​​race.
The stock trades at a price-to-earnings ratio of 7.2, which is significantly more reasonable than Nvidia’s valuation. That’s why I believe Alphabet is the one AI stock investors should buy instead of the high flyers GPU stock.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
Forget Nvidia: 1 Artificial Intelligence (AI) Stocks to Buy Instead was originally published by The Motley Fool
