Better Artificial Intelligence (AI) Stock: Alphabet vs. Micron Technology (the Winner May Surprise You)

In the artificial intelligence (AI) investing sector, there are several ways to play the trend. You can invest in legacy tech companies like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) that are integrating AI throughout their products, training their own AI models, and building a cloud computing network to run internal and external AI workloads. Another popular way is to pick an infrastructure play like Micron (NASDAQ: MU), which provides memory chips used in data center applications.

These two have been profitable investments over the past year, but which looks like the better stock pick now?

Image source: Getty Images.

Alphabet's AI gains will be longer-lived

Alphabet has a wide AI strategy, and it appears to be excelling in nearly every area. Its Gemini generative AI platform is widely used and has been integrated into Google Search, offering AI search summaries for nearly every result. Alphabet also has a thriving cloud computing business that saw 63% revenue growth during Q1. All of these business units are showing strong growth, and that growth is likely to continue.

The same cannot be said for Micron. Micron makes memory chips used in computing hardware and long-term storage devices. Demand for these is booming right now as a huge number of data centers are being built.

But what happens when the data center build-out is over? That's a question that keeps Micron investors up at night, as the memory market will look far different after the build-out is over than it does right now. While there will always be some residual demand for new and replacement computing units, it will likely never reach the peak demand we're seeing right now ever again.

So, from a long-term investing perspective (I'm talking a decade plus), Alphabet is the better stock to buy.

Winner: Alphabet

Micron's growth is jaw-dropping

While Alphabet has the edge in the long term, Micron is delivering incredible results in the short term. During its latest quarter, revenue rose 346% year over year to $41.5 billion -- exceeding the $33.5 billion in guidance it gave. And next quarter, Micron expects $50 billion in revenue. To top things off, Micron's management team informed investors that it foresees memory chip demand escalating and supply constraints persisting beyond 2027.

Alphabet is posting solid growth for its size: Its revenue rose 22% year over year in Q1 to more than $109 billion. That's strong growth for a mature business like Alphabet, but compared to Micron, it just isn't on the same level.

Winner: Micron

Comparing valuations is difficult

Comparing the valuations of two companies that are growing at entirely different rates, have different long-term outlooks, and that don't operate on the same fiscal year calendar isn't easy.

Alphabet is the more traditional stock to evaluate. It has a fast, but not out-of-the-ordinary growth rate, a forward price-to-earnings ratio of 24 (pretty standard for a big tech stock), and its fiscal year is the same as the calendar year.

GOOGL PE Ratio (Forward) data by YCharts.

Micron is none of those. Its fiscal year ends in August, so using fiscal 2027 projections alongside its fiscal 2026 earnings projections is a smart move. From this perspective, Micron's stock still actually looks cheap, even after its monstrous rise this year.

MU PE Ratio (Forward 1y) data by YCharts.

But how do you value a company whose core business strengths could erode in just a few years if data center demand drops or if memory chip production increases enough to end the ongoing shortage? That's what makes understanding Micron's stock so difficult, but when a company's earnings are growing this fast and the stock looks this cheap, it's hard to ignore. With Micron's stock being so much cheaper on a projected earnings basis than Alphabet's, I'm giving it the win here.

Winner: Micron

Micron still may not be the stock for you

Although Micron won this analysis, it may not be the better stock for you. As an investment, it requires close monitoring, and it faces execution risks beyond 2027. Still, I think it could have a solid run over the next few years. If you'd prefer to own an investment that has less potential for outsized gains but that also has less potential for volatility, then Alphabet remains a solid AI stock pick.

Keithen Drury has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Micron Technology. The Motley Fool has a disclosure policy.