The AI Stock I'm Buying for My Retirement Portfolio -- and Why It Has Nothing to Do With Hype

At 35, I'm still a couple of decades from retirement. I hope all the stocks in my portfolio are worth keeping for the next 30 years and beyond. But a lot can change over that much time, so I can't be sure every company will end up part of my retirement portfolio.

I'm reasonably confident in a few of them, and the company at the top of the list is my favorite artificial intelligence (AI) stock: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), which owns Google. Alphabet stock has more than doubled over the last year, but I'm not buying because of hype. It's the No. 1 stock in my retirement portfolio because I think it's the best long-term value in the tech sector.

Image source: The Motley Fool.

Alphabet has all the tools to win the AI race

When Alphabet stock sank below $170 last year, one of the main reasons was the concern that Google Search was vulnerable to AI. Instead, Alphabet has turned AI into a strength.

Google incorporated AI Overviews, and last July, Google CEO Sundar Pichai reported that these AI Overviews had over 2 billion users per month. There's been no indication that AI chatbots have damaged Google Search financially, either. Google Search revenue increased by 19% year over year to $60.4 billion in the first quarter of 2026.

Google also improved its own AI assistant, Gemini, making it more competitive with ChatGPT and Claude. While I still personally prefer Claude, Gemini has clearly gotten much better over the last year, and that's reflected in usage.

The Gemini app has over 750 million monthly active users. In the first quarter, Alphabet reported that its first-party models processed more than 16 billion tokens per minute via direct API use from customers, a 60% increase from the previous quarter.

What sets Alphabet apart from other top AI stocks is that it controls its entire AI stack. It has its own custom silicon, AI models, cloud computing, and a distribution layer through its existing products. This full-stack approach makes Alphabet far less reliant on other AI companies and is why I feel most confident in its long-term success.

A successful conglomerate at a reasonable price

Google Search is Alphabet's biggest revenue driver, but the company has several successful businesses. Google Cloud made $20 billion in sales in Q1 2026, a 63% year-over-year increase, and its backlog nearly doubled from the previous quarter to over $460 billion.

It also owns YouTube, and while ad revenue from that is a solid $9.9 billion, another benefit is that it gets users to sign up for premium plans. Pichai said that YouTube is a key driver behind Google's 350 million paid subscriptions, which doesn't surprise me. YouTube Premium is easily the subscription service I use the most and the last one I'd want to cut.

Another business worth mentioning is Waymo, Alphabet's autonomous driving technology company. It surpassed 500,000 paid robotaxi rides per week in the first quarter, and after a $16 billion investment round, it's now valued at $126 billion.

Because Alphabet's share price has increased so much, the question often arises: Is it still a good investment? The valuation actually isn't particularly expensive, especially for one of the leading tech stocks. Alphabet trades at 27 times forward earnings, comparable to Nvidia at 26 times forward earnings. Its trailing price/earnings-to-growth (PEG) ratio is below 0.7, indicating it's undervalued relative to its earnings growth.

What about the risks?

The biggest worry with Alphabet is the same one investors have about all the major hyperscalers: massive capital expenditures (capex). In its first-quarter earnings call, Alphabet raised capex guidance for 2026 to between $180 billion and $190 billion.

This has become par for the course with companies building AI data centers. Combined, the four major hyperscalers (Alphabet, Amazon, Meta Platforms, and Microsoft) forecast $600 billion to $700 billion in capex spending in 2026, according to recent research by The Motley Fool.

Even for a profitable business like Alphabet, this kind of spending will drain its free cash flow ($64.4 billion over the trailing 12 months). If revenue from AI products and services falls short of expectations, the company's spending could prove a costly mistake.

To be honest, I'm not worried about Alphabet's capex spending. Demand for computing power is skyrocketing, and AI data centers can become another source of revenue. In April, Anthropic signed a partnership with Google and Broadcom for computing capacity, and earlier this month, it committed to spending $200 billion with Google Cloud over five years.

No company is a sure investment. But with its AI-powered growth and all the successful businesses under its umbrella, Alphabet is the one I trust the most to continue compounding over the next three decades.

Lyle Daly has positions in Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.