Better Artificial Intelligence (AI) Stock: Alphabet vs. Nvidia | The Motley Fool

Tech giants Alphabet (GOOG -1.44%) (GOOGL -1.44%) and Nvidia (NVDA -3.01%) are among the businesses at the forefront of artificial intelligence (AI), making them compelling AI investments. Each offers a different aspect of the AI ecosystem to invest in.

Nvidia is a leader in the semiconductor hardware AI needs to operate on cloud computing infrastructure, such as Alphabet's Google Cloud platform. Alphabet's software products deliver AI's benefits to consumers. For example, its Google search engine shows AI-generated responses to many search queries.

Given that Alphabet and Nvidia operate in different areas of the AI sector, is one a better AI investment over the other? Getting to an answer requires digging into each tech titan in more depth.

Diving into Alphabet's AI ambitions

Like many of its tech peers, Alphabet is investing heavily into AI. It poured $52.5 billion into capital expenditures (capex) last year, and expects to up that to $75 billion in 2025.

These costs are a necessity. Alphabet's AI must win over consumers because people are starting to shift away from search engines, such as Google, in favor of AI tools. Research firm Gartner predicts search engine usage will drop by a whopping 25% in 2026 as people adopt AI apps instead, such as OpenAI's ChatGPT.

Google accounted for a massive $198.1 billion of Alphabet's $350 billion in 2025 revenue. So Alphabet needs AI users to embrace its artificial intelligence solutions to keep Google revenue from falling.

So far, Alphabet's AI products are succeeding. Its Google Cloud customers are using the platform to build AI for their businesses, and usage has surged eightfold over the past 18 months. This contributed to Google Cloud revenue rising to $43.2 billion in 2024, up from 2023's $33.1 billion.

Alphabet is also working on quantum computers, tech that could supercharge AI. In December, the conglomerate announced Willow, a quantum chip capable of completing calculations in minutes that would take today's supercomputers centuries to complete. Willow is still experimental, but if Alphabet can bring the chip into broad use eventually, this could be a game changer.

Nvidia and the age of AI reasoning

Nvidia's outsize success amid the AI boom understandably captured headlines. The firm enjoyed jaw-dropping 114% sales growth to $130.5 billion in its 2025 fiscal year, ended Jan. 26. That success was driven by tech companies, such as Alphabet, buying Nvidia products to build AI capabilities in their cloud data centers.

Nvidia is likely to enjoy further sales growth in 2025 given the expanded capex spending from Alphabet and others. In fact, Nvidia expects $43 billion in first-quarter sales for its 2026 fiscal year, up from the prior year's $26 billion.

But how long will the company's soaring sales continue? It could be years as the AI industry evolves. In the last couple of years, businesses focused on building and training powerful AI software. With these systems up and running, the next AI phase is ramping up.

This next period is referred to as the "age of AI reasoning." It focuses on post-training refinement of AI models to not only process data and information, but to more closely mimic human thinking, like drawing conclusions from the data.

Businesses will need more computing power to deliver this capability, and Nvidia is providing it with its new Blackwell Ultra platform, announced in March. Alphabet is already among the tech luminaries adopting Blackwell Ultra, which is expected to come out in the second half of this year.

And like Alphabet, Nvidia is also looking ahead to quantum computers. It launched a quantum computing research center to help build a quantum machine capable of widespread use.

Choosing between Alphabet and Nvidia

Alphabet's and Nvidia's AI capabilities make deciding which to invest in a difficult choice. Adding to the challenge is that both possess stellar financials.

Alphabet's 2024 revenue of $350 billion was a 14% year-over-year increase, resulting in net income of $100.1 billion and free cash flow (FCF) of $24.8 billion. Nvidia's 114% year-over-year jump up to $130.5 billion in fiscal 2025 sales led to $72.9 billion in net income and $60.7 billion in FCF.

One factor to help with the decision is to consider stock valuation using the price-to-earnings (P/E) ratio. This commonly employed metric tells you how much investors are willing to pay for a dollar's worth of earnings.

Data by YCharts.

Nvidia's stock is currently more reasonably valued after its share price fell amid recent stock market volatility. However, as of the time of this writing, its P/E multiple of 37.8 remains higher than Alphabet's 19.5, suggesting Alphabet is a better value.

That said, Nvidia's stock arguably warrants a greater valuation due to factors such as the company's larger FCF, and the risk to Alphabet's Google search business amid rising consumer AI usage. Indeed, it may be wise to see how Google's income changes throughout 2025 before deciding to invest in Alphabet.

Meanwhile, Nvidia makes an attractive investment because of its leadership in AI semiconductor components and strong growth prospects as the AI industry evolves. And with a better valuation, now appears to be a good time to pick up shares. These factors make Nvidia the superior AI stock to invest in right now.