Important points
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Alphabet designing its own chips will help reduce its dependence on Nvidia, which is known for charging premium prices.
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Google Cloud is Alphabet’s fastest growing segment, but it still lags behind Google Search’s revenue.
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Alphabet has done a great job of seamlessly integrating the Gemini model into their ecosystem.
Nvidia They are often one of the first companies that come to mind when you think of artificial intelligence (AI) companies. The company, which once focused on video game graphics, has become one of the world’s most important AI companies and is now the most valuable publicly traded company, with a market capitalization of more than $5.4 trillion as of June 1.
Will AI create the world’s first millionaire? Our team published a report on one little-known company called an “essential monopoly” that provides critical technology needed by both Nvidia and Intel. Continued “
Despite Nvidia’s opportunities for success and growth, it’s not the smartest AI stock to invest $500 in right now. It will be Google’s parent company. alphabet(NASDAQ:GOOG)(NASDAQ:Google). The company’s annual returns are on par with Nvidia’s (both are up more than 18%), but it’s its full-stack approach that sets it apart as an AI stock.
Image source: Motley Fool.
Reduce dependence on third-party chip manufacturers
For AI to work as it does today, many functional parts work together. While some companies operate in one part of the AI ecosystem, Alphabet is responsible for three main parts: chip manufacturing, cloud, and its own AI model, Gemini.
Data centers, the physical backbone of AI, cannot operate without a large number of advanced chips. Whether it’s Nvidia’s graphics processing unit (GPU) or AMDAccelerators, chips are to data centers what electricity is to power grids.
Google has designed its own chips, called tensor processing units (TPUs) or central processing units (CPUs), which has allowed it to reduce its dependence on third-party chip designers such as Nvidia. We still need companies like Taiwan semiconductor manufacturing company But unlike many other companies, it’s not entirely dependent on NVIDIA’s pricing power or overall supply shortages.
This saves Alphabet money and allows it to more effectively coordinate hardware and software collaboration and integration.
A cloud business worth getting excited about
Google Cloud is one of the big three cloud computing platforms, and it lags behind. Amazon Web services (AWS) and microsoftAzure market share. While Google Cloud is firmly in third place in terms of size (and likely will remain so for some time to come), all three platforms are experiencing rapid growth as the overall demand for cloud services has increased significantly.
In the first quarter (Q1) of 2026, Google Cloud’s revenue increased 63% year over year, exceeding $20 billion for the first time. While this is great, it may not be as impressive as backlog nearly doubling to $467.6 billion or operating margin increasing 15.1 percentage points to 32.9%.
Ideally, Google Cloud would have the capacity to handle all the increased demand, but that’s not the case right now. That’s the main reason the company plans to invest $180 billion to $190 billion in capital this year. More data centers are needed to expand capacity. And on June 1, Alphabet proposed raising $80 billion in equity capital to more aggressively build out its AI infrastructure.
Gemini is an added bonus
Alphabet’s Gemini AI model is one of the most popular in the world, along with OpenAI’s GPT and Anthropic’s Claude. However, one thing Alphabet has that other companies don’t is its vastness. vast — Massive amounts of data from platforms and families of apps.
Between Google Search, YouTube, Google Maps, and more, Alphabet has the data advantage in training Gemini. Whether you consider it “better” than other models largely depends on what you use the AI for, but it’s seamlessly integrated into Alphabet’s entire ecosystem. And if you’re not interested in different models, Alphabet can offer benefits that other companies don’t, like cloud storage and tighter integration with Google tools.
Some companies need AI to be the “next big thing” to survive. Alphabet has the advantage that this technology will benefit its already well-oiled business today.
Should you buy Alphabet stock now?
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Stefon Walters works for Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
