Not Nvidia. Not Micron. This Dirt Cheap “Magnificent Seven” Stock Could Be the Biggest Winner of the Trillion-Dollar AI Race – Here’s the Case.

Nvidia and Micron Technology have been among the biggest winners for investors in the artificial intelligence (AI) space. That's because of their leading positions in two of the key areas driving the AI boom -- compute and the memory needed for AI operations. Nvidia is the world's No. 1 designer of graphics processing units (GPUs), high-powered chips driving key AI tasks like training and inference. And Micron is one of the top makers of the memory and storage chips essential to AI.

All of this has been reflected in these companies' earnings as well as in stock price performance. Nvidia's revenue soared in the triple digits to $96 billion, and Micron's also climbed in the triple digits to $41 billion in the latest quarter. As for the shares, they've advanced 900% and 1,300%, respectively, over five years.

Though these companies are clear AI winners, moving forward, another player may rise to the top. In fact, this dirt cheap "Magnificent Seven" stock could be the biggest winner of the trillion-dollar AI race. Here's the case.

Image source: Getty Images.

The "Magnificent Seven" and AI

So, first, a quick look at the stocks known as the "Magnificent Seven." This is a group of top tech players with a track record of earnings growth, and each plays a role in the AI space. They are: Nvidia, Amazon, Apple, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms, Microsoft, and Tesla. These companies have powered the S&P 500 through this three-year bull market, helping the index reach record levels. Investors like these tech giants for the businesses they've built over time -- and the fresh growth potential AI brings.

In recent weeks and months, some of these companies have seen their valuations dip, and considering their solid long-term prospects, this offers investors a buying opportunity. But one in particular stands out. This company is the cheapest of the "Magnificent Seven" right now, and it also may be the biggest winner of the AI race.

I'm talking about Alphabet, a company that's trading at only 15x forward earnings estimates today.

AAPL PE Ratio (Forward) data by YCharts

That price level, along with the company's earnings performance over time, offers investors a good reason to buy the stock. And its prospects in AI reinforce the argument.

An internet search giant

You might know Alphabet best for its dominance in something most of us use daily: internet search. Alphabet's Google Search holds more than 90% of this market, and this is the key to the company's revenue strength. Advertisers turn to the Google platform to place ads to reach us, their target audience. This has resulted in billions of dollars in revenue for Alphabet, with growth quarter after quarter. In the latest period, Google ad revenue climbed 14% to $81 billion. That's on $119 billion in total revenue for the company.

Now, let's turn to the AI opportunity, which is already delivering for Alphabet. The company, through its Google Cloud business, is strongly present in the space. Alphabet has developed the Gemini family of large language models and offers this and other AI products and services to Google Cloud customers. This has resulted in explosive growth and the need to heavily invest in infrastructure to keep up with demand.

Why Alphabet stock has slipped

In fact, if you're wondering why Alphabet's shares have dipped over the past few months, it's due to investors' concerns about the pace of AI spending -- this has weighed on other tech companies involved in the build-out, too. So far, however, we've seen that much investment by Alphabet and others has been to serve current demand. And forecasts for AI market growth remain strong. So, though some risk remains, the information we have so far suggests this spending is necessary and will set these companies up for long-term success.

Alphabet's AI efforts are also helping boost the advertising profit engine: As the company applies Gemini to its Google platform to make it better for users and advertisers, advertisers are likely to spend more here.

Why will Alphabet be the biggest winner of the AI race? Nvidia and Micron win when they sell their products to customers. Alphabet, as a provider of a wide range of AI and a user of AI too, is positioned for success regardless of which chip designer or memory maker gains more market share. As long as customers continue to turn to AI, Alphabet is likely to score a major victory in this hot market.

Adria Cimino has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Micron Technology, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.