Artificial intelligence (AI) has undoubtedly been the hottest topic in the business world in the past year and a half. Executives are trying to better position their companies to take advantage of this trend. And the investment community is figuring out ways to profit from what many see as a revolutionary technology.
There's no denying that Nvidia (NASDAQ: NVDA) has been the poster child of the AI boom. The company is firing on all cylinders. And the stock has gone bonkers, catapulting 2,500% higher in the past five years and 682% since the start of 2023.
If you missed Nvidia's monster rally, don't worry. Perhaps it's time to consider what I believe is the best AI stock to buy and hold.
Nvidia's impressive run
Nvidia is known for selling graphics processing units that power AI applications. The company has a stranglehold on the market. It has a whopping 98% revenue share of the data center GPU industry. Nvidia essentially sells the picks and shovels that power AI systems that other businesses are investing aggressively in. This puts it in a favorable competitive position to benefit from the ongoing AI gold rush, which many observers think is still very much in the early innings.
It's not a surprise that growth has been tremendous. In fiscal 2024 (ended Jan. 28), revenue was up 126% versus the prior year. And during the fiscal 2025 first quarter (ended April 28), the good times continued, with sales rising 262%. It's also encouraging to see that Nvidia is extremely profitable, reporting an operating margin of 65% in Q1.
Nvidia's momentum is impressive, as the business benefits from heightened spending on AI-related infrastructure. However, investors shouldn't expect Nvidia's spectacular growth to continue indefinitely. That's an unrealistic assumption.
While the company's success has been eye-popping, the valuation has gotten stretched. Shares trade at a nosebleed price-to-earnings (P/E) ratio of 67.3. It might be too late to buy the stock, as optimism has gotten sky-high.
Don't forget about Alphabet
The market always falls in love with a hot growth story. This has pushed Nvidia's market cap to $2.8 trillion. But investors shouldn't ignore a dominant internet firm that I believe is well positioned in the AI race. I'm talking about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).
The tech titan has been utilizing AI and machine learning as far back as 2001 in its flagship service, Google Search. It's not new to this technology. In fact, CEO Sundar Pichai positioned the business to focus more on AI initiatives in 2016. While the introduction of ChatGPT might have spurred a race to develop AI products quickly, it's worth pointing out that Alphabet was ahead of the curve.
This puts Alphabet in a prime position because its products and services are used by billions of people worldwide every day. It doesn't necessarily need a killer AI app to drive financial gains. It can constantly launch new AI features to its user base to almost instant adoption, something only a select few other companies can do.
Alphabet's Gemini AI models are "making Google's own products better," Pichai said on the Q2 2024 earnings call. In the Google Cloud segment, AI will be a big focal point to better serve clients with their various needs, making Alphabet an even more important mission-critical partner.
It's hard to argue with the belief that Alphabet will be a leader in the AI race. Besides being a leading enterprise at the cutting edge of the internet and technology, it has unrivaled resources to invest heavily. As of June 30, the business had $101 billion of cash, cash equivalents, and marketable securities on the balance sheet, much more than the $13 billion in long-term debt. Plus, it has exceptional talent and tech know-how.
At a P/E ratio of 26.4 and with forecast earnings-per-share growth of 19.4% between 2023 and 2026, Alphabet is my best AI stock to buy and hold.
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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 Out on Nvidia's Run-Up? My Best AI Stock to Buy and Hold. was originally published by The Motley Fool