In the investment realm of artificial intelligence (AI), two heavyweights are Nvidia (NASDAQ: NVDA) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). These two are leading the charge in different sectors and represent sensible companies to invest in if they are trying to profit from the AI race.
But of these two, which is the better buy? Let’s find out.
Alphabet is a much broader AI investment
First, let’s discuss how these two address different areas of artificial intelligence.
Nvidia’s graphics processing units (GPUs) are widely used in AI supercomputers because they have created an optimized system for processing data. The boom in demand caused by the prolific race to develop artificial intelligence has created unprecedented demand for its GPUs, sending Nvidia stock up an incredible 234% in 2023.
Alphabet’s investment in artificial intelligence is a bit broader. The productive AI model, Gemini AI, beats most competitors (including OpenAI’s GPT-4) in head-to-head competitions. It also has a cloud computing division, which allows customers to rent computing power and data storage for many uses, including artificial intelligence. Finally, the company recently announced a reorganization of its advertising division to focus on further integrating artificial intelligence.
All in all, Nvidia is a one trick pony, but its one trick was incredible. Alphabet is a much broader AI investment, making it a more conservative investment. There is no winner here, as both represent different ways of investing in AI.
Call it a draw.
Nvidia is developing at unparalleled speeds
As mentioned above, the demand for Nvidia GPUs has been incredible. In the third quarter of 2024 (ended October 29), its revenue rose 206% year over year to $18.1 million. It also drove $20 billion in revenue for the fourth quarter, so this wasn’t just a strong quarter.
Alphabet’s revenue growth was notable at 11%, but it’s not even in the same world as Nvidia.
Winner: Nvidia.
Alphabet’s growth is more sustainable
One part of Nvidia’s investment thesis that is often overlooked is how sustainable these revenue levels are. Not a subscription company (for the most part). Once she sells her GPUs, her customer probably won’t need to build another system for a while. This could pose a problem in the future, as demand for GPUs may (or may not) disappear.
Should Nvidia’s revenue fall sharply, the stock will follow suit, as its price is permanent (albeit cyclical).
Alphabet’s products are primarily subscription-based or must be purchased regularly (like advertising). This makes Alphabet’s profits much more permanent than Nvidia’s.
Winner: Alphabet.
Alphabet looks like a symphony
Valuation of Nvidia at a trailing price-to-earnings (P/E) basis. it can only be done with a warning. It hasn’t seen significant growth yet, so it still has a few quarters that haven’t produced the same earnings as the most recent ones.
But if Nvidia’s sales decline after the sales boom wears off, it would give investors an idea of how expensive the stock will be.
Using any metric, Nvidia is pretty expensive. On the other hand, Alphabet’s stock is much cheaper.
So on that basis, Alphabet looks like a much better buy.
Winner: Alphabet.
Nvidia’s growth potential is higher
Demand for Nvidia GPUs is currently insatiable, but how long that demand will last is unknown. It can be two quarters, two years or two decades. As a result, the company’s upside is unknown.
Alphabet probably won’t grow much faster than 15% every year, but it should see revenue growth almost every quarter.
So depending on your risk tolerance, Nvidia could be a better buy if you want absolute upside, while Alphabet is better for consistent, long-term growth.
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The verdict
Picking a winner here is really a matter of preference. The two stocks represent different investment philosophies. I’m more partial to Alphabet, as I’d prefer a slower, more guaranteed upside to Nvidia boom or bust.
I’m still worried about what will happen to Nvidia stock once AI supercomputer demand is met, and that’s enough to keep me from investing in it (which could be a huge mistake on my part).
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an Alphabet executive, is a board member of The Motley Fool. Keithen Drury has positions in Alphabet. The Motley Fool has positions and recommends Alphabet and Nvidia. The Motley Fool has one disclosure policy.
Best artificial intelligence (AI) stock: Nvidia vs. Alphabet originally published by The Motley Fool