Missed Out on Nvidia’s Run-Up? My Best AI Stock to Buy and Hold | The Motley Fool
Artificial intelligence (AI) has unmistakably been setting the business world ablaze over the last eighteen months. Companies across the globe are scrambling to harness the potential of AI, while investors seek to capitalize on what is widely regarded as a groundbreaking technological paradigm shift.
Among the standout success stories of the AI surge, Nvidia shines brightest. With its comprehensive suite of graphics processing units (GPUs) critical for AI applications, Nvidia has seen its stock soar—achieving a staggering 2,500% increase in the past five years, including a 682% rise since the beginning of 2023 alone.
But for those who weren’t aboard the Nvidia rocket, it’s not too late to engage with AI’s transformative power. Allow me to introduce what I consider the must-own AI stock for the long-term investor: Alphabet.
The Nvidia Phenomenon
Nvidia’s dominion over the data center GPU market is near absolute, boasting an overwhelming 98% revenue share. This unique positioning allows Nvidia to supply the vital tools necessary for businesses investing heavily in AI, ensuring a significant competitive edge in the ongoing technological race—a race many claim is just getting started.
Fiscal reports reveal Nvidia’s dramatic growth, with a 126% year-over-year revenue increase in fiscal 2024, and a continued surge of 262% in the first quarter of fiscal 2025. Coupled with an operating margin of 65% in Q1, Nvidia’s financial health is robust. Yet, as awe-inspiring as Nvidia’s ascent is, it’s prudent to recognize the limitations of perpetual growth. The stock’s sky-high valuation, reflected in a P/E ratio of 67.3, suggests we might be nearing peak optimism.
Alphabet: The AI Colossus
Set against this backdrop is Alphabet, a company whose integration of AI and machine learning dates back to the turn of the millennium with Google Search. Alphabet is no novice in the AI domain. Its decisive shift towards AI-focused operations under CEO Sundar Pichai in 2016, predates the current industry frenzy ignited by ChatGPT and the like.
Alphabet’s crown jewel, its unparalleled reach through services utilized daily by billions, affords it a seamless channel to deploy new AI features. This unique capability—paired with Alphabet’s ongoing innovations such as the Gemini AI models enhancing Google’s assorted products—places it at a substantial advantage.
Alphabet’s financial muscle underscores its towering stature in the technology world. With $101 billion in cash and securities against a modest $13 billion debt load as of mid-2024, coupled with its talent and technological prowess, Alphabet is poised not merely to compete but to lead in the expanding AI frontier.
Given its more approachable P/E ratio of 26.4 and an anticipated earnings growth of 19.4% from 2023 to 2026, Alphabet represents an exceptional opportunity. It’s a stock not just for the moment, but for the future, encapsulating the essence of a wise investment in the AI revolution.
In conclusion, while Nvidia’s journey has been nothing short of spectacular, the forward-looking investor would do well to consider the broader potential and more grounded valuation of Alphabet. It’s my top pick for an AI stock to buy and hold, promising a blend of innovation, stability, and growth.
