Generative AI sales could surge 2,026%: These are my picks for the best AI stocks to buy right 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 may have been the biggest winner in the early stages of the generative AI boom. Nvidia shares are up 680% since the beginning of 2023.

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 2026% to $1.4 trillion by 2032. This creates a unique opportunity for investors.

This is why Alphabet (NASDAQ:GOOG) (NASDAQ: GOOGL) is my pick for the best AI stocks to buy right now.

Alphabet’s growth accelerated in the first quarter

Alphabet reported great financial results in the first quarter. Revenues increased 15% to $80.5 billion, driven by particularly strong momentum in Google Cloud. Generally accepted accounting principles (GAAP) net income increased 57% to $23.7 billion as the company’s cost structure continued to be optimized. Sales 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 includes sales via Google Search, 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 dethrone the company as the search leader.

However, according to StatCounter, Google remains the leading internet search engine in terms of referrals (i.e. clicks on search results), with a market share of over 90%. Moreover, YouTube is the most popular streaming service measured by 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 accounted for 28.1% of digital ad sales last year, 6.6 percentage points more than its nearest competitor.

Meanwhile, Google Cloud Platform is the third largest provider of cloud infrastructure and platform services. The alphabet still lags behind Amazon Internet services and Microsoft Azure has grown significantly, but has gained a percentage point of market share over the past year, and market share gains may continue as the generative AI boom gains popularity.

The story continues

Alphabet uses generative artificial intelligence to support its advertising business

Alphabet is widely considered a leader in AI research, but OpenAI took a step forward in the field of generative AI by launching ChatGPT in November 2022. Since then, Alphabet has struggled to regain its position, and despite a few missteps along the way, its latest release 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 ways that could cement its dominance. For example, Gemini allows marketers to create media assets and configure campaigns using natural language, and the company is experimenting with interactive ads tailored to individual users.

In addition, Alphabet is adding AI summaries to Google Search, a feature that uses generative artificial intelligence to provide short summaries on selected topics. Overviews also help users quickly gain insight into 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. He can edit 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 with training and deployment tools. Customers can also use Gemini to build generative AI applications that can query (and display content) in a variety of media formats, including text, images, video 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). Together, product innovation around Gemini 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’s stock is trading at a reasonable valuation

Digital advertising spending is expected to grow 15% annually through 2030, while the cloud computing market is expected to grow 21% annually over the same period. Wall Street analysts expect Alphabet’s revenue to grow at a slower rate of 10.5% annually, but that leaves room for growth depending on how effectively the company transforms generative artificial intelligence into its advertising and cloud computing efforts.

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

Is it worth investing €1,000 in Alphabet now?

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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 Jennevine holds positions at Amazon and Nvidia. The Motley Fool takes positions on 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.

Generative AI sales could surge by 2,026%: Here are my picks for the best AI stocks to buy right now (hint: not Nvidia) was originally published by The Motley Fool