Most AI Stocks Need Perfect Conditions to Win. This One Doesn't.

It's probably not surprising that artificial intelligence companies are feeling a little stress right now. Every industry goes through its ups and downs. That's why it's important to invest with the long term in mind.

AI companies are under fire right now because there's concern that spending is outpacing the industry. There are memory shortages, capacity issues, and some political pushback that is getting new attention in the wake of the U.S. midterm elections. Add Jensen Huang's scandal that triggered his resignation as CEO of Nvidia -- by all accounts, the top AI company -- and you've got a perfect storm that is hurting the AI industry now.

But here's the rub: AI is here to stay. Nothing that has happened in the last few weeks will cause the technology to wither and die; in fact, it's just going to grow stronger as more companies figure out how to use it well. So, I believe a smart way to invest in AI right now is to find a company that doesn't need everything to go right. Because it's got its fingers in many different AI pies -- and it's making money from several of them already.

I'm talking about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).

Image source: Getty Images.

Google Cloud is growing at an incredible pace

Alphabet's third-quarter results demonstrate just how much demand there is for its AI products. Revenue was $127.6 billion, up 25% from a year ago. Google Cloud revenue, which represents Alphabet's powerful cloud computing business, more than doubled to $30.7 billion. Cloud operating income was $11.1 billion, compared with $3.6 billion a year earlier.

Much of that growth came from customers buying AI computing infrastructure and services. Google Cloud posted a $561 billion backlog, so the company is assured that profits will continue to roll in.

It would be fine if Alphabet were simply renting computing capacity. But it's doing a lot more. Its custom tensor processing units, or TPUs, were originally developed to support Google's AI workloads, but Alphabet is now selling TPU systems to outside customers. Management believes TPU sales will grow next year, giving Alphabet another way to profit from AI.

AI is helping Google's biggest business

Alphabet's most recognizable business is its Google search engine, which has more than a 90% global market share. Google Search has become increasingly important to Alphabet's bottom line, and it's using AI to help out there, as well.

Alphabet incorporated AI to augment its Search results, helping Google Search and related revenue increase 12% to $63.3 billion in the third quarter. On the company's earnings call, CEO Sundar Pichai said AI features are contributing to search activity, with year-over-year query growth reaching its highest rate in five years.

Meanwhile, the Gemini app has reached 1 billion users, giving Alphabet another enormous audience for its AI technology.

Alphabet has more than one way to win

Cloud computing, TPU sales, and AI-powered Search each offer opportunities for growth. And even if one develops more slowly than expected, Alphabet can still generate substantial revenue from the others.

That's why I think Alphabet is one of the more compelling AI stocks for long-term investors. It doesn't need every part of the AI boom to unfold perfectly to remain a highly profitable business.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.