Generative AI Sales Could Grow 2,026%: Here’s My Pick of the Best AI Stocks to Buy Now (Hint: Not Nvidia)

Generative artificial intelligence (AI) came into the spotlight when OpenAI introduced ChatGPT in late 2022. Nvidia CEO Jensen Huang recently called it “the defining technology of our times,” and his company was arguably the most successful in the early stages of the generative AI boom. Since the beginning of 2023, Nvidia shares are up 680%.

However, the market is growing rapidly and countless companies will benefit in the long run. Bloomberg Intelligence says sales of generative AI across hardware, software and services could grow 2,026% to $1.4 trillion by 2032. This presents investors with a once-in-a-generation opportunity.

This is why Alphabet (GOOG -0.35%) (GOOGLE -0.28%) is my pick for the best AI stocks to buy right now.

Alphabet’s growth accelerated in the first quarter

Alphabet announced great financial results in the first quarter. Revenue increased 15% to $80.5 billion due to particularly strong growth in Google Cloud, and GAAP net income increased 57% to $23.7 billion as the company’s cost structure continued to be optimized. Revenue and net profit growth have been accelerating for four quarters in a row.

The chart shows first-quarter revenue growth across Alphabet’s four main product categories.

Alphabet has a strong presence in digital advertising and cloud computing

Google Advertising covers sales on the Google search engine, YouTube and the Google network. In the first quarter, ad sales fell across the Google network, which includes millions of third-party websites. However, sales increased on Google Search and YouTube. That’s encouraging because these platforms underpin Alphabet’s dominance in digital advertising, and some investors were concerned that generative artificial intelligence (AI) could unseat the company as a search leader.

However, according to StatCounter, Google remains the leading internet search engine in terms of referrals (i.e. clicks on search results), with over 90% of the market share. Additionally, YouTube is the most popular streaming service in terms of watch time. These platforms enable Alphabet to engage internet users and collect data on a massive scale. Advertisers value the company’s reach and expertise – so much so that Alphabet captured 28.1% of digital ad sales last year, 6.6 percentage points more than its closest competitor.

Meanwhile, Google Cloud Platform is the third largest provider of cloud infrastructure and platform services. The alphabet still leaves traces Amazon Network Services i Microsoft Azure by a wide margin, but it has gained a percentage point of market share over the past year, and share gains could continue as the generative AI boom grows.

Alphabet uses generative artificial intelligence to support its advertising business

Alphabet is widely considered a leader in AI research, but OpenAI overtook generative AI by launching ChatGPT in November 2022. Since then, Alphabet has struggled to regain its position and, despite a few bugs along the way, released the latest version of Gemini (released in May) can help fill this gap.

Gemini is a multimodal generative artificial intelligence model, which means it can process text, images, videos and code. Alphabet is weaving Gemini into its advertising ecosystem in several different ways that could reinforce its dominance. For example, Gemini enables marketers to create media assets and build campaigns using natural language, and the company is experimenting with interactive ads tailored to individual users.

Additionally, Alphabet is adding AI Reviews to Google Search, a feature that uses generative AI to deliver short summaries on selected topics. Overviews also help users quickly understand more complex topics. On a recent earnings call, CEO Sundar Pichai told analysts that AI overhauls are increasing Google Search usage and user satisfaction.

Alphabet is using generative artificial intelligence to improve its cloud computing business

Alphabet is also using Gemini to create monetization opportunities in Google Cloud, a business segment that includes cloud computing services (Google Cloud Platform) and business productivity software (Google Workspace). For example, Gemini automates tasks in Workspace applications. It can sketch text in Google Docs, organize data in Google Sheets, and create presentations in Google Slides.

Additionally, Google Cloud customers can customize Gemini using Vertex AI, a machine learning platform that includes training and deployment tools. Customers can also use Gemini to create generative AI applications that can prompt (and display content in) a variety of media formats, including text, images, videos and computer code.

CEO Sundar Pichai recently told analysts that Google has the “best infrastructure” for artificial intelligence, including custom chips called tensor processing units (TPUs) and Nvidia’s latest graphics processing units (GPUs). Collectively, Gemini-related product innovations and advanced infrastructure attract companies to Google. More than 60% of funded generative AI startups and 90% of generative AI unicorns are Google Cloud customers.

Alphabet shares are trading at a reasonable valuation

Going forward, digital advertising spending is projected to grow by 15% annually through 2030, and the cloud computing market is projected to grow by 21% annually over the same period. Wall Street analysts expect Alphabet’s sales to grow at a slower pace of 10.5% annually, but that leaves room for growth depending on how effectively the company monetizes generative artificial intelligence in its advertising and cloud computing areas.

Personally, I think Alphabet has a good chance of exceeding sales growth forecasts by Wall Street analysts. However, its current valuation of 7.3 times sales is reasonable on both counts, so investors should consider purchasing a small position in this AI stock today.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Trevor Jennewine holds positions at Amazon and Nvidia. The Motley Fool covers and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends the following options: long $395 Microsoft calls in January 2026 and short $405 Microsoft calls in January 2026. The Motley Fool has a disclosure policy.