Why the Alphabet Stock Dip Looks Like a Golden Buying Opportunity

Shares of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) took a hit to start the week after it was revealed that the company had recently lost some high-profile employees. Last week, the co-lead on its Gemini models, Noam Shazeer, announced he was leaving to join OpenAI. And then DeepMind's vice president and Nobel Prize winner, John Jumper, said he was heading to Anthropic.

The loss of AI talent to rivals isn't a positive, but it doesn't remove the advantages that Alphabet has created. That is why the price dip could be a great investing opportunity.

The AI model and chip advantage

Alphabet's biggest edge is that it is the most complete AI company with world-class models and AI accelerator chips. By having its own models, the company can capture more AI revenue streams within its Google Cloud segment, and it is using Gemini to help add features and fuel growth with its consumer businesses, including Google Search.

The company's Gemini models are very good, but on the consumer side, the company doesn't even necessarily need the best model, especially in certain areas like coding. Its distribution -- through the ownership of Chrome, Android, and a revenue-sharing deal on search with Apple -- give it a big edge, while its ad network lets it monetize consumer AI better than anyone else.

That said, Alphabet's biggest edge isn't its models, which are very good, but its chips. Management smartly developed its proprietary tensor processing units (TPUs) more than a decade ago and optimized its entire hardware and software stack around them.

This lets it train its models and run inference at a much lower cost than rivals like OpenAI and Anthropic. Employees moving to those rivals after being involved with its AI models doesn't lessen that advantage.

This is also Alphabet's biggest growth driver. Its cloud computing business is booming, and by being able to offer its TPU infrastructure services to its customers, it captures higher margins. It is also set to sell some of its chips outside of Google Cloud to Anthropic, which opens up another high-margin revenue stream for the company.

Image source: The Motley Fool

Time to buy the stock

Being a leader in both AI models and chips should position Alphabet to be one of the dominant AI players over the next decade. The loss of a few highly talented employees isn't going to change that. This makes this recent sell-off a great buying opportunity, with the stock trading at a forward price-to-earnings ratio of just above 24 times.

That's a bargain for what looks set to be a top AI stock over the long term.

Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.