This Trillion-Dollar AI Stock Has Seen a Steeper Increase in Market Cap Than Nvidia This Year. Is It a Buy?
Key Points
Nvidia became the world’s biggest company last year, reaching beyond $4 trillion in market value.
This other AI player recently saw its market value explode higher, though it still remains smaller than Nvidia.
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Nvidia reached a major milestone last year. The artificial intelligence (AI) chip leader became the world's biggest company when it touched $4 trillion in market value. But the company didn't stop there. Nvidia has continued to advance and today remains the largest company -- but now at a value of more than $5 trillion.
Over the past few years, Nvidia, Apple, and Microsoft have each spent time in this leading position. In recent times, though, another AI giant has surpassed both Apple and Microsoft. And though this company is still less valuable than Nvidia, it actually saw a steeper increase in market cap than the AI leader so far this year. Is this trillion-dollar AI stock a buy now? Let's find out.
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Image source: Getty Images.
Playing a key role in AI
This company plays a key role in the AI story, as it develops AI for its own use and offers AI products and services to customers through its cloud business. I'm talking about Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). You may know this player best through something you might use every day: Alphabet's Google Search. And this has been the ticket to the lion's share of revenue over time -- Google sells advertising across its platforms, and companies are eager to buy as they know they can reach their audience there.
Alphabet today is using its Gemini large language model to power innovation across the Google platform, making search better and the advertising experience easier and more profitable for customers. All of this should support ad revenue growth moving forward.
But where the company truly stands out in AI is through Google Cloud, its cloud services business. Here, it offers customers access to Gemini, a wide variety of chips, and many other AI products and services. And this has supercharged cloud revenue. For example, in the recent quarter, Google Cloud revenue soared 63% to $20 billion. So Alphabet, along with Nvidia, is at the heart of this AI revolution, participating in a market that may reach beyond $2 trillion by the end of the decade.
So it's not exactly surprising that Alphabet stock has climbed, driving market value higher. So far this year, Alphabet's market cap has increased by 20% to $4.5 trillion. That's as Nvidia's has climbed 12%.
GOOG Market Cap data by YCharts
As mentioned, Alphabet's market cap surpassed that of Apple and Microsoft just a few weeks ago, making it the world's second-largest company. Apple has since gained the spot back, but by a very slim margin.
GOOG Market Cap data by YCharts
A stock with momentum
Now, the question is: Is Alphabet a buy right now? It's clear the stock has momentum, and this momentum is well deserved. The company offers a long track record of earnings growth, and its position in the AI market suggests it may continue to benefit as the AI story develops. Capacity to run workloads is in great demand, and as AI is actually applied to real-world problems, this should continue.
In the recent quarter, Alphabet said cloud backlog almost doubled sequentially to $462 billion, and about half of that will translate into revenue over the coming two years.
The company is also making its mark in the chip space and aims to deliver its TPUs to select customers' data centers -- this is a new revenue stream for Alphabet.
So, an investment in Alphabet may bring an investor the security of a well-established tech company as well as the opportunity to benefit from an AI-driven growth story. This makes it a compelling holding for cautious as well as aggressive investors. Right now, Alphabet stock isn't at its cheapest. It trades for 26x forward earnings estimates -- though that's down from 30x late last year, it's higher than the level of about 20x just a couple of months ago. Still, at today's level, it remains reasonably priced, making it an excellent addition to long-term portfolios seeking safety and growth.
Should you buy stock in Alphabet right now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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