The AI wars have sent Nvidia’s stock price soaring to new highs.
Artificial intelligence (AI) has arguably been the hottest topic in the business world over the past year and a half, as executives try to position their companies to take advantage of the trend and the investment community seeks ways to profit from what many see as a revolutionary technology.
There’s no denying that Nvidia (NASDAQ: NVDA) is the poster child for the AI boom, and the company is going all in: Its shares have skyrocketed, up 2,500% over the past five years and up 682% since the start of 2023.
If you missed Nvidia’s big surge, don’t worry: Perhaps it’s time to consider the best AI stocks to buy and hold.
Nvidia’s impressive run
Nvidia is known for selling the graphic processing units that power AI applications. The company dominates the market, boasting a staggering 98% revenue share in the data center GPU industry. Nvidia essentially sells the picks and shovels that power the AI systems that other companies are actively investing in. This puts them in a competitive position to profit from the ongoing AI gold rush that many observers believe is still in its early stages.
It’s no surprise that the growth has been impressive. Revenues for fiscal year 2024 (ended January 28) were up 126% year over year. And the strength continued in the first quarter of fiscal year 2025 (ended April 28), with sales up 262%. It’s also encouraging to see that Nvidia is extremely profitable, reporting a first-quarter operating margin of 65%.
Nvidia is on a roll as it benefits from rising spending on AI infrastructure, but investors shouldn’t expect Nvidia’s phenomenal growth to continue forever — that’s an unrealistic assumption.
The company’s success has been impressive, but its valuation is overvalued — shares are trading at a whopping 67.3 times earnings — and with optimism soaring, it may be too late to buy the stock.
Don’t forget the alphabet
The market always gets hooked on high-profile growth stories, which has helped Nvidia’s market cap rise to $2.8 trillion. But investors shouldn’t ignore a leading Internet company that I believe is well-positioned in the AI race. I’m talking about Alphabet (GOOGL -0.17%) (GOOG -0.28%) .
The tech giant has been leveraging AI and machine learning in its flagship service, Google Search, since 2001. The technology is not new; in fact, CEO Sundar Pichai positioned the company to place more emphasis on AI initiatives in 2016. The introduction of ChatGPT may have intensified the race to quickly develop AI products, but it’s worth pointing out that Alphabet was ahead of its time.
Alphabet is in an advantageous position because its products and services are used by billions of people around the world every day. The company doesn’t necessarily need a killer AI app to make money. It can continually release new AI features to its user base and have them adopt them almost instantly, something very few other companies can do.
During the company’s second-quarter earnings call, Pichai said Alphabet’s Gemini AI model is “improving Google’s own products.” For the Google Cloud division, AI will be a major focus to better serve the various needs of its customers, 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. Not only is the company a leading Internet and technology company, it also has unparalleled resources to make big investments. As of June 30, the company had $101 billion in cash, cash equivalents, and marketable securities on its balance sheet, far exceeding its $13 billion in long-term debt. In addition, the company has extraordinary talent and technology know-how.
With a P/E ratio of 26.4 and projected earnings per share growth of 19.4% between 2023 and 2026, Alphabet is my favorite AI stock to buy and hold.
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.
