There is perhaps no company more emblematic of the artificial intelligence (AI) boom. NVIDIA (NASDAQ: NVDA)The thriving semiconductor company is now operating at full speed and rewarding shareholders in an incredible way.
You’re probably looking for a way to get in on the ongoing AI trend, but you should probably forget about Nvidia. Instead, check out this other company:The Magnificent SevenSelect “In Stock” instead.
Expectations rise for Nvidia
Nvidia has once again impressed investors with a stellar financial report: For the three months ending April 28 (Q1 2025), the company revealed that revenue grew 262% year-over-year to $26 billion. Operating profit was even more impressive, increasing 690%.
Demand for Nvidia's chips is stronger than ever, especially in the data-center sector. Looking ahead, executives expect revenue to reach $28 billion this fiscal year, slowing from the previous quarter and year over year but still representing big growth for the business.
Naturally, the market is fascinated by AI-focused businesses, and hype for Nvidia continues to grow, with its stock trading at a premium. Price to sales ratio With a P/S ratio of 35.9, it shows how high investor expectations are. Nvidia seems perfectly priced at the moment.
Investors wanting to buy Nvidia stock today will likely not be too happy about missing out on the stock's rapid rise. This may be a bold statement, but at this point, I think this is a perfect example of people trying to chase profits, and not a smart investment strategy.
Dominant Internet Companies
It's hard to tell investors to ignore one of the hottest stocks on the market. But there's a company already performing well as a leader in AI. I'm saying: alphabet (Nasdaq: GOOGL) (Nasdaq: GOOG)With a market cap of $2.2 trillion, the company is a big winner for shareholders, and that trend is likely to continue.
Despite bringing in a massive $307 billion in sales last year, Wall Street consensus analysts expect revenue to grow at an annualized rate of 11.5% between 2023 and 2026. That growth will come from increased usage of Alphabet's many products and services, which will translate into higher digital advertising revenues. This is where AI can help.
Alphabet CEO Sundar Pichai declared in 2016 that the world would move from mobile to AI first, and establishing this mindset early on put the company at the forefront of this emerging technology.
Alphabet has a huge user base, with at least 2 billion people using its six products, so it can easily release new AI features and have them adopted at scale almost instantly. Some of its best-known services, including Photos, Maps, Gmail, and YouTube, have been using AI in some form for some time.
When it comes to Google Cloud, there's an opportunity to make a bigger impact. As the third-largest company in the industry with $9.6 billion in first-quarter revenue, the segment is quickly becoming a mission-critical technology infrastructure partner to its customer base. Customers can use a wide range of tools, including: Generative AImachine learning, voice and text capabilities to build your own applications.
It's natural for investors to gravitate toward hot new businesses and stocks to jump on the bandwagon and make quick profits. But when it comes to AI, the dominant Internet company seems well-positioned to capitalize. Alphabet has nearly unlimited funds to aggressively invest in server and network infrastructure to strengthen its position in the AI race, as represented by $108 billion in cash, cash equivalents and marketable securities.
The stock is trading at a P/S ratio of 7.2, which is a lot more reasonable than Nvidia's valuation, so I think AI investors should buy Alphabet stock instead of other overvalued companies. GPU Stock.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool's board of directors. Neil Patel and his clients have no investments in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
“Forget Nvidia: The 1 Artificial Intelligence (AI) Stock to Buy Instead” was originally published by The Motley Fool.
