Data is one of the greatest assets a company can have when it comes to developing artificial intelligence (AI).
When it comes to artificial intelligence (AI), most investors and Wall Street analysts use the “Magnificent Seven” stocks as a key barometer — and for good reason.
Microsoft It has invested billions of dollars into OpenAI, the developer of ChatGPT. NVIDIA's graphics processing units (GPUs) provide great insight into where and how businesses are exploring AI-powered use cases.
Nevertheless, investment banks Goldman Sachs Another member of the Magnificent Seven is the clear winner of the AI revolution so far.
Just a few days ago, Goldman alphabet (Google 0.72%) (Google 0.83%) As a leader among mega-cap AI companies. Why? Data. Lots of data.
Let's analyze why data is Alphabet's competitive advantage and explore why now is a favorable time to accumulate shares at a cheap valuation.
Alphabet rules the internet
There is no doubt that ChatGPT has piqued the interest of AI enthusiasts, corporate workplaces, and even students.
Over the past year or so, one of the criticisms of Alphabet has been that ChatGPT poses a threat to traditional search habits. Because Alphabet is the parent company of internet search engine Google and video-sharing platform YouTube, some suspected that the company was facing an existential threat and losing steam when it came to user preferences on the internet.
But even with the increasing competition, Google and YouTube remain the two most-visited websites in the world, with over 100 billion site visits each month.
Image source: Getty Images.
Why is Alphabet's data so important?
The website traffic Alphabet generates gives the company more data points than any of its competitors. Alphabet can then use this data as input to train Gemini, a large-scale language model (LLM).
Hedge fund manager and Alphabet investor Bill Ackman said Alphabet's “strong distribution moat” is a unique trait that will allow the company to maintain its dominance in AI.
This enables Alphabet to develop, refine and release generative AI applications at a faster pace than other platforms, and it also enables the company to integrate its AI-powered tools across a large and growing ecosystem including advertising, cloud computing, social media and workplace productivity software.
Alphabet's stock price is too cheap
As shown in the chart below, Alphabet has the lowest forward price-to-earnings (P/E) ratio of the Magnificent Seven.
GOOG PE Ratio (Forward) data from YCharts
In my view, investors are discounting Alphabet's growth prospects, and the reason for this is primarily rooted in competition.
To be sure, ChatGPT is undoubtedly popular, and Microsoft has seen impressive growth since integrating AI tools across its ecosystem. Moreover, semiconductor companies are likely to benefit from the broader AI movement in the long term, as secular tailwinds continue to boost chip demand.
This doesn't necessarily mean that Alphabet's business model is in danger. In fact, increased competition and the proliferation of AI use cases could lead to a new chapter in Alphabet's growth story.
I think investors are missing the forest for the trees here. Alphabet is extremely well positioned to benefit from many aspects of AI. As long as people continue to rely on Google and YouTube for information and entertainment, Alphabet will remain a leader in data collection. This should ultimately serve as a catalyst for the company's long-term AI roadmap.
To me, Alphabet stock is extremely cheap and its discount to its mega-cap peers represents a buying opportunity. Investors with a long-term view should consider taking advantage of Alphabet's valuation differential and accumulating shares now.
Suzanne Frey, an Alphabet executive, is a director of The Motley Fool. Adam Spatacco has invested in Alphabet, Microsoft, and Nvidia. The Motley Fool has invested in and recommends Alphabet, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
