If you look up ‘artificial intelligence’ (AI) in the dictionary, you might only see a picture of the Nvidia logo. I’m kidding, of course, but there’s no denying that this company is the clear poster child for this revolutionary technological trend.
This AI infrastructure company has proven to be a monster winner. Shares have risen 2,560% over the past five years, outperforming the broader Nasdaq Composite Index by an incredibly large margin. This means that a $10,000 investment in September 2019 would be worth a whopping $266,000 today.
You might be feeling discouraged if you missed Nvidia’s run-up. But maybe it’s time to take a closer look at what I think is the best AI stocks now.
Nvidia’s Impressive Run
Some investors may think Nvidia’s huge profits are justified. The company is selling the graphic processing units (GPUs) needed to power many AI systems. And as companies of all sizes try to position their operations to integrate AI, Nvidia is a prime beneficiary.
According to research by Mizuho Securities, Nvidia has between 70% and 95% of the market for chips that power AI models. Unsurprisingly, its growth has been incredible. Revenue jumped 122% from $13.5 billion in the same period last year to $30 billion in the second quarter of fiscal 2025 (ending July 28).
Nvidia is also extremely profitable, posting a 75% profit gross margin and 62% operating margin in the last fiscal quarter. It is no surprise that the market has become incredibly bullish and optimistic about the prospects of Nvidia. This is now a $2.7 trillion enterprise.
But as I write this, stocks are trading at a price-earnings ratio (P/E) ratio of 52. That makes it the second most expensive “Magnificent Seven” stock, which is not an attractive proposition for investors.
Alphabet’s enviable position
Nvidia gets all the attention when it comes to AI stocks, but investors should also look at these stocks Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG)I think this is the best AI stock to buy and hold.
In 2001, the company was already using machine learning and AI capabilities in its powerful search engine, helping users with their spelling. And even before OpenAI’s launch of ChatGPT in November 2022 ushered in the AI boom, the technology was being developed and integrated into several Alphabet products and services, such as providing traffic data in Maps, making it easier to find photos by searching for what’s in them, and preventing spam in Gmail.
CEO Sundar Pichai positioned the company as “AI first” in 2016. Today, AI is undoubtedly part of Alphabet’s current DNA. To be clear, the company The first steps in AI did not go smoothlyBut the Gemini AI model works.
“All six of our products with over 2 billion monthly users are now on Gemini. This means that Google is the company that is truly making AI available to everyone,” Pichai said at the Q2 2024 Earnings Call.
Alphabet has an unmatched reach to continue introducing AI features for near-instant adoption. This allows for rapid feedback, which only helps to constantly improve its offerings and strengthen Alphabet’s competitive position.
And the company has virtually unlimited cash resources. It generated $54 billion in annual free cash flow in the second quarter. And Alphabet is currently sitting on a massive $87.5 billion in net cash, giving it the firepower to continue investing heavily in AI.
While Nvidia’s valuation is high, that’s not really an issue in this case. Alphabet shares trade at a reasonable price-to-earnings ratio of 23. Investors shouldn’t overthink it. Alphabet has long been a dominant force in the internet age. And I see that continuing for years to come, especially in a world where AI is becoming increasingly common.
Should You Invest $1,000 in Alphabet Now?
Before you buy Alphabet stock, here are some things to consider:
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Suzanne Frey, an 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 Nvidia’s Run-Up? My Best AI Stocks to Buy and Hold was originally published by The Motley Fool
