Semiconductor stocks have been on fire since the launch of ChatGPT in late 2022. Since then, a slew of new generative artificial intelligence (AI) applications have made high-end GPUs that can handle accelerated applications a hot commodity. like Nvidia (Nasdaq: NVDA) It is the leader in that subset of the chip market, and its sales and stock price have skyrocketed.
After watching Nvidia’s stock price rise 222% in the 12-month period that ended Wednesday, some investors are justifiably concerned the stock will decline. Too far ahead In itself.
Nvidia will announce its fourth-quarter financial results on February 21. During the fiscal third quarter, which ended on October 29, total revenues rose 206% year over year.
Its valuation at around 97 times trailing earnings is not unreasonable if you assume growth continues at its current rate. However, the semiconductor industry is known to be cyclical. Demand for chips that can power generative AI applications will eventually collapse. We do not know when this collapse will come. If you buy Nvidia at this inflated valuation and it hits the bottom next year, you could suffer huge losses.
For most people who missed the boat on Nvidia, getting on board now carries more risks than they used to can bear. If you want to tie your portfolio to a major player in the AI revolution with much lower risk, consider buying shares the alphabet (NASDAQ:GOG)(Nasdaq: Google) Now to keep it for the long term.
Alphabet’s AI prowess is better than you think
The AI gold rush began when OpenAI launched ChatGPT about a year and a half ago. By then, Alphabet had already been a leader in artificial intelligence for several years. In a 2016 blog post, Alphabet CEO Sundar Pichai told everyone that “in the next 10 years, we will transition to an AI-first world, one in which computing becomes universally available.”
If it didn’t have an army of engineers skilled in the arts of machine learning, Google wouldn’t be able to recognize misspellings in search queries or rank search results correctly. With artificial intelligence working behind the scenes to deliver better results, Google has captured a 91.5% share of the global search market, according to Statcounter. MicrosoftBing, a tech giant currently worth more than $3 trillion, launched Bing nearly 15 years ago, but it still owns just 3.4% of the global search market.
Google Maps has over a billion monthly users, and millions of businesses are eagerly using the platform to attract new customers. Maps is another AI-driven app that wouldn’t be able to predict traffic or recommend improved routes without the contributions of some of the most valuable talent in the AI industry.
Why is Alphabet well positioned for the next chapter of artificial intelligence?
In addition to a search business that dominates its competitors, Alphabet is a leading provider of cloud computing services. Late last year, its cloud offerings became even more valuable with the addition of Gemini.
OpenAI gave Alphabet a miss when it launched ChatGPT in late 2022. In short, Gemini offers a similar generative AI experience to consumers using the chatbot formerly known as Bard. Gemini also gives enterprise-level Google Cloud customers the opportunity to build their own AI applications.
With multiple applications with more than 1 billion monthly active users, Google can provide enterprise cloud customers with access to large amounts of real-world data they won’t find anywhere else.
Acceptable price
Google Cloud sales rose 26% year over year in the third quarter. With a large addressable market and an advantage over competitors that don’t dominate the search and location data markets, investors can reasonably expect strong growth from its cloud business for another decade.
The vast majority of Alphabet’s revenue and profits still come from Google services. This segment is growing more slowly than its cloud business, but it is still far from stagnant. Google Services revenue rose 12.5% year over year in the fourth quarter. During the same time frame, operating income from the services sector jumped 32%.
With its advantages over competitors, and its two key operating segments growing at double-digit percentages, Alphabet should be valued at a high earnings multiple – but that’s not the case. You can buy the stock for about 21 times forward earnings expectations.
There is no such thing as a risk-free growth stock. With reliable earnings from advertising and cloud services, buying Alphabet at a reasonable valuation gives you an excellent opportunity for long-term progress. With its established foothold in the rapidly evolving field of artificial intelligence, it also has a chance to become a top performer. Buying some stocks now to hold them for the long term seems like a smart move.
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Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Corey Renoir He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
Did you miss the opportunity to buy Nvidia? The #1 Artificial Intelligence (AI) Growth Stock to Buy Now and Hold for a Decade or More Originally published by The Motley Fool