The affordable giant: Alphabet
Google parent Alphabet has firmly positioned itself as a leader in the AI market. Equipped with one of the largest cloud computing platforms on the market, decades of pioneering AI development, and the powerful Google Gemini large language model (LLM), the company has aligned its extensive resources to make the most of the AI boom.
To follow Alphabet's AI business, you should track the sales and operating profits of the Google Cloud segment. There, first-quarter sales rose 28% year over year while operating income multiplied from $191 million to $900 million. And the division has a gargantuan backlog on long-term contracts, which will generate subscription-style revenues for years to come. In the first quarter, that order book stood at $72.5 billion, "primarily related to Google Cloud."
Gemini is arguably the most capable rival to OpenAI's ChatGPT chatbot. Its advanced LLM engine was created by the combined teams of Google Brain and Google DeepMind -- two of the world's leading AI research teams before they were combined. So far, the best version of this tool is only available in English, for a monthly fee of $20. Over time, I expect Gemini's artificial brains to show up in a plethora of Google's freely available tools, from Google Maps to Google Docs -- and services that aren't even public knowledge yet.
And it's hard to find an AI giant with a more affordable stock than Alphabet. Shares are changing hands at 25 times trailing earnings and 30 times free cash flows. Microsoft (MSFT -3.21%) comes with a 40% price premium on both counts, largely thanks to its close association with OpenAI and ChatGPT. Both software giants run far behind AI chip designer Nvidia (NVDA -1.54%), whose stock trades at 73 times earnings and 80 times free cash flows.
So if you want to tap into the AI market through an established leader in software and services, but without paying an arm and a leg for that privilege, Alphabet is your best bet today.
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