Here’s My Favorite Artificial Intelligence (AI) Stock, and It’s Not Nvidia

Interest in artificial intelligence (AI) has skyrocketed over the last year, attracting businesses and consumers from dozens of industries. The launch of OpenAI’s ChatGPT reinvigorated the AI market and forced the public to rethink what was currently possible with the generative technology.

In the last 12 months, the Nasdaq-100 Technology Sector Index has risen 55%, with much of that growth owed to Nvidia. The chipmaker’s business exploded alongside a boom in AI. Its stock has climbed 234% since last April as AI chip demand has increased, leading to soaring earnings for the company.

As a result, Nvidia has become a poster child of sorts for the rally in AI. However, with numerous companies joining the market, there are potentially better investment options and ways to back the budding industry.

So, here’s why Alphabet (GOOG -1.94%) (GOOGL -2.03%) is my favorite AI stock right now, even over Nvidia.

Beginning to see returns on its heavy investment in AI

Alphabet is no stranger to AI, with CEO Sundar Pichai describing the company as seven years into its “journey as an AI-first company.” However, like many tech firms, Alphabet recently placed a stronger focus on the industry.

Since last year, the company launched its most powerful AI model, Gemini, introduced a range of new AI tools on its cloud platform, Google Cloud, and began incorporating the technology into services across its product lineup.

Alphabet posted its first quarter of 2024 earnings on April 25, leading its shares to jump 14% in the hours following. The company welcomed revenue gains of 15% year over year, outperforming estimates by nearly $2 billion.

Alphabet’s quarter beat on multiple fronts, with earnings per share hitting $1.89 against expectations of $1.51. Meanwhile, YouTube advertising revenue came in at more than $8 billion when analysts projected $7.7 billion.

However, the most promising beat came from Alphabet’s AI-focused Google Cloud segment, which posted revenue growth of 28% year over year to $9.6 billion. Wall Street had forecast $9.3 billion for Alphabet’s cloud business.

Investors rallied over Alphabet’s stock, with signs that the company is beginning to see a return on its investment in AI. Businesses worldwide are increasingly utilizing the Google company’s generative AI tools and cloud infrastructure to boost efficiency in their operations.

Moreover, Alphabet has multiple use cases of AI thanks to the vast user base it has built up with platforms like YouTube, Chrome, Android, and the many services under Google. The company likely has a bright future in AI, and you won’t want to miss out.

Alphabet announces its first-ever dividend

In addition to excitement over its outlook in AI, Alphabet rallied investors this week with the surprise announcement of its first-ever dividend. The cash amount will be $0.20 per share, revealed alongside plans to repurchase up to an additional $70 billion in stock.

The dividend represents a vote of confidence from Alphabet’s board of directors about the company’s direction and financial future. Management clearly believes in the company’s path and ability to continue paying dividends for the foreseeable future.

Data by YCharts

Moreover, Alphabet’s stock is one of the best bargains in AI. The charts above show that it has the lowest forward price-to-earnings (P/E) ratio and price-to-free cash flow out of some of the biggest names in the industry.

Forward P/E is calculated by dividing a company’s share price by its estimated earnings per share, while price-to-free cash flow divides its market cap by its free cash flow. These are useful metrics for determining a stock’s value as investors consider a company’s financials. With both metrics, the lower the figure, the better the value.

And in this case, Alphabet is one of the best-valued stocks in AI. With glowing earnings, an exciting outlook in AI, and a potent position in tech, Alphabet’s stock is worth considering investing in right now before it’s too late.