Generative AI Revenue on Track to 10X by 2030: 1 AI Stock That Will Benefit (Hint: It's Not Nvidia)

Source The Motley Fool

Investor excitement for artificial intelligence (AI) might be overhyped today. The stock market can at times seem like a manic-depressive being, exaggerating any positive or negative developments with rapid share price swings. With AI stocks like Nvidia soaring tenfold in just a few years, it is possible these stocks will head into a correction, given that they are priced for perfection at the moment.

This doesn't change the fact that the generative AI sector is still in the early innings of growth. Some analysts estimate that spending on generative AI alone will reach $356 billion in 2030, growing at a 46% annual rate over the next six years, making it one of the fastest-growing sectors in the world. That would be up from an estimated $36 billion this year. With its premium valuation, a company such as Nvidia already has a lot of this growth priced into its stock.

However, there is one reasonably priced AI stock hiding in plain sight: Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). Here's why the technology giant will benefit from surging demand for generative AI through 2030.

Alphabet's AI comeback

OpenAI struck fear into Alphabet investors back in late 2022. With the rapid growth of ChatGPT and its advanced conversational AI tools, investors worried that Alphabet -- parent company of Google Search -- had fallen behind in AI. This led its stock to fall to a price-to-earnings ratio (P/E) of close to 15 in early 2023, its cheapest earnings ratio in a decade.

In the last two years, Alphabet has proven these doubters wrong. The stock has posted a 90% total return since these 2023 lows. Through its various subsidiaries and research labs, Alphabet has copied or bested every single one of OpenAI's innovations and has come up with some new AI products of its own.

There is NotebookLM, a document summary tool that can speak audibly or provide written summaries on complex topics. There are also the new Google Search AI summaries, which are helping improve the customer value proposition of the most-used product on the planet. Let's not forget the new Google Lens feature, which allows people to search by taking a picture instead of the traditional text query.

The list could go on. Alphabet is winning outside of generative AI, too. Its self-driving start-up, Waymo, has expanded to multiple cities across the United States and now does 100,000 weekly rides, growing tenfold year over year. This is an underrated part of Alphabet's business that is only enabled by its leadership in AI.

Betting on cloud revenue growth

Alphabet has proven in the last few years that it is not a lagging tech company in AI. In fact, you might be able to argue that the company is the definitive winner so far in this new generative AI space. But how will the company monetize all these new tools?

One way is through Google Cloud, Alphabet's most promising subsidiary at the moment. The cloud computing giant takes all of Alphabet's innovations in AI, computer chips, and data centers and sells these tools to third parties. Last quarter, Google Cloud revenue grew 35% year over year to $11.4 billion. Over the long term, investors should expect this fantastic growth to continue if the analysts are correct about booming generative AI spending through 2030.

At $100 billion in annual revenue and 25% profit margins -- a milestone Google Cloud should reach within a few years -- the segment will be generating $25 billion in operating earnings for the parent company. That is a sizable and growing chunk of its $105 billion in trailing consolidated operating earnings.

GOOG PE Ratio Chart

GOOG PE Ratio data by YCharts

Investors are still underrating the stock

Even though Alphabet is proving its might in AI both with product innovation and its financial performance, the stock is still not performing in line with other technology peers.

With a P/E of just 23, Alphabet has one of the cheapest earnings ratios across the AI and broader technology landscape. Nvidia has a P/E of 66. Apple -- which is growing much slower than Alphabet and has shown little ability to succeed with AI products -- is trading at a P/E of 37.

Generative AI revenue is going to soar through the rest of this decade. The one company set to take the largest slice of this revenue is Alphabet because of its plethora of AI products and monetization tactics. You can buy the stock today at a P/E of 23, well below the S&P 500 index average of 30. That is a recipe for producing fantastic long-term returns for your portfolio.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $869,885!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 18, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Bitcoin Outlook 2025As the Bitcoin market continues to mature, its 2025 outlook appears highly favourable, driven by institutional adoption and regulatory developments.
Author  TradingKey
Jan 23, Thu
As the Bitcoin market continues to mature, its 2025 outlook appears highly favourable, driven by institutional adoption and regulatory developments.
placeholder
Dogecoin Price Could Reach $1.05 As Early As June – AnalystAfter several weeks of consolidation, Dogecoin has again started to climb, with its price almost doubling in a 30-day timeframe. This sudden rally comes behind a wider inflow into the crypto market, with many bullish indicators now surfacing on Dogecoin’s price chart.
Author  Bitcoinist
May 13, Tue
After several weeks of consolidation, Dogecoin has again started to climb, with its price almost doubling in a 30-day timeframe. This sudden rally comes behind a wider inflow into the crypto market, with many bullish indicators now surfacing on Dogecoin’s price chart.
placeholder
Ark Invest’s Cathie Wood Predicts Bitcoin To Hit $1.5 Million By 2030 — Here’s WhyCathie Wood, the CEO of asset management firm Ark Invest, has backed Bitcoin (BTC) to achieve a $1.5 million price point by 2030.
Author  Bitcoinist
May 19, Mon
Cathie Wood, the CEO of asset management firm Ark Invest, has backed Bitcoin (BTC) to achieve a $1.5 million price point by 2030.
placeholder
Stock Futures Edge Up as Trump-Musk Feud Cools, Jobs Report LoomsU.S. stock futures edged higher on Friday as markets awaited the critical May nonfarm payrolls report and signs emerged that the escalating feud between President Donald Trump and Elon Musk may be cooling.
Author  Insights
Jun 06, Fri
U.S. stock futures edged higher on Friday as markets awaited the critical May nonfarm payrolls report and signs emerged that the escalating feud between President Donald Trump and Elon Musk may be cooling.
placeholder
China sends warning to BYD and its rivals amid heightened price warsChinese authorities summoned executives from the country’s major electric vehicle (EV) manufacturers, including industry leader BYD Co., to a closed-door meeting in Beijing this week, according to people familiar with the matter, cited by Bloomberg.
Author  Cryptopolitan
Jun 06, Fri
Chinese authorities summoned executives from the country’s major electric vehicle (EV) manufacturers, including industry leader BYD Co., to a closed-door meeting in Beijing this week, according to people familiar with the matter, cited by Bloomberg.
goTop
quote