Missed Nvidia’s Run-Up? My Top AI Stock to Buy and Hold

If you look up “artificial intelligence” (AI) in the dictionary, you might see an image of Nvidia logo. I’m kidding, of course, but there’s no denying that this company is a clear example of this revolutionary technological trend.

This AI infrastructure company has been a big winner, with shares up 2,560% over the past five years, crushing the broader market Nasdaq Composite Index an incredibly large advantage. This means that an investment of $10,000 in September 2019 would be worth a whopping $266,000 today.

You might be discouraged if you missed Nvidia’s run-up. But maybe it’s time to take a closer look at what I consider the best AI Actions right now.

Nvidia’s Impressive Streak

Some investors may think Nvidia’s huge profits are justified. The company sells graphics processing units (GPU) essential to powering many AI systems. And as companies of all sizes try to position their operations to integrate AI, Nvidia has been a prime beneficiary.

According to research Mizuho Securities, Nvidia has between 70% and 95% of the market share of chips that power AI models. No wonder the growth has been incredible. Revenue has increased 122% from $13.5 billion in the same period a year ago to $30 billion in the second quarter of fiscal 2025 (ended July 28).

Nvidia is also extremely profitable, with a 75% gross margin and 62% operating margin in the last fiscal quarter. Not surprisingly, the market has become incredibly bullish and optimistic about Nvidia’s prospects. It’s now a $2.7 trillion company.

However, at the time of writing, the shares are trading at a price price to profit The P/E ratio is 52. This makes it the second most expensive share of the “Magnificent Seven”, which is not an attractive proposition for investors.

Alphabet’s enviable position

When it comes to AI stocks, all the attention is on Nvidia, but investors should keep an eye on Alphabet (GOOGLE -4.02%) (GOOG -4.08%)I think this is the best AI stock to buy and hold.

As far back as 2001, the company was already using machine learning and AI capabilities in its powerful search engine to help users with spelling. And even before OpenAI’s November 2022 launch of ChatGPT, which kicked off the AI ​​boom, the technology was being developed and integrated into various Alphabet products and services, such as providing traffic data in Maps, making it easier to find photos by searching their content, and preventing spam in Gmail.

CEO Sundar Pichai called the company “AI first” in 2016. AI is now clearly part of Alphabet’s DNA. To be clear, the company the first steps in the field of artificial intelligence were not the easiest. But the Gemini AI model works.

“All six of our products with over 2 billion monthly users are now powered by Gemini. This means that Google is the company that is truly making AI accessible to everyone,” Pichai said at Q2 2024 Results Conference Call.

Alphabet has the unparalleled reach to continue to introduce AI features to near-instantaneous adoption. This allows for rapid feedback that helps continually improve offerings and strengthen Alphabet’s competitive position.

And the company has virtually unlimited cash. It generated $54 billion in annual free cash flow in the second quarter. And Alphabet currently has a whopping $87.5 billion in net cash, giving it the firepower to keep investing in AI.

While Nvidia’s valuation is high, that’s not a cause for concern here. Alphabet shares are trading at a reasonable P/E ratio of 23. Investors shouldn’t think too much about that. Alphabet has long been a dominant force in the internet age. And I see that continuing in the coming years, especially as AI becomes more and more common.

Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.