If you search for “artificial intelligence” (AI) in the dictionary, you might jokingly expect to find an image of Nvidia’s logo. While that’s an exaggeration, it’s undeniable that this company has become the emblem of this groundbreaking technological movement.
Nvidia has been a standout success in the AI space. Over the past five years, its stock has soared by 2,560%, dramatically outperforming the broader Nasdaq Composite Index. This translates to a $10,000 investment in September 2019 being valued at an astounding $266,000 today.
If you didn’t catch Nvidia’s meteoric rise, you might feel a bit down. However, now could be the perfect opportunity to delve deeper into what I consider the finest AI stock currently available.
Nvidia’s remarkable ascent
Some investors might argue that Nvidia’s significant gains are justified. The company provides the graphics processing units (GPUs) essential for powering numerous AI systems. As businesses across the spectrum aim to incorporate AI, Nvidia has emerged as the primary beneficiary.
Research by Mizuho Securities indicates that Nvidia holds between 70% to 95% of the market for chips powering AI models. It’s no wonder growth has been phenomenal. From the previous year’s $13.5 billion, revenue surged by 122% to reach $30 billion in the fiscal 2025 second quarter, which concluded on July 28.
Nvidia’s profitability is equally impressive, with a 75% gross margin and a 62% operating margin in the latest fiscal quarter. Given this performance, it’s not surprising that the market is extremely bullish and optimistic about Nvidia’s future. The company is now valued at $2.7 trillion.
However, at the time of writing, Nvidia’s shares carry a price-to-earnings (P/E) ratio of 52. This makes it the second most expensive “Magnificent Seven” stock, a factor that might deter potential investors.
Alphabet’s advantageous position
While Nvidia garners most of the attention regarding AI stocks, investors should also consider Alphabet (-4.02%) (-4.08%). In my opinion, it’s the top AI stock to buy and hold.
As early as 2001, Alphabet was leveraging machine learning and AI capabilities in its powerful search engine, assisting users with spelling. Even before OpenAI’s launch of ChatGPT in November 2022 sparked the AI surge, this technology was being developed and integrated into various Alphabet products and services, such as providing traffic data in Maps, enabling easier photo searches, and blocking spam in Gmail.
CEO Sundar Pichai committed to making Alphabet “AI first” back in 2016. Today, AI is undeniably woven into Alphabet’s core. Admittedly, the company’s initial AI endeavors were not without challenges. But its Gemini AI model is proving effective.
“All six of our products with over 2 billion monthly users now utilize Gemini. This means Google is genuinely the company making AI accessible to everyone,” Pichai stated during the Q2 2024 earnings call.
Alphabet’s unparalleled reach allows it to introduce AI features that rapidly gain adoption, facilitating swift feedback that enhances offerings and fortifies its competitive edge.
Moreover, the company boasts nearly limitless financial resources, having generated $54 billion in annualized free cash flow in the second quarter. Alphabet currently holds a substantial net cash balance of $87.5 billion, providing it with the means to invest heavily in AI.
While Nvidia’s valuation is high, this isn’t a concern with Alphabet. Its shares trade at a reasonable P/E ratio of 23. Investors should not overcomplicate matters. Alphabet has long been a dominant force in the internet era, a trend I see continuing in the future, especially as AI becomes more ubiquitous.
