Forget Nvidia: Billionaires are buying artificial intelligence (AI) stocks instead

nvidia Nvidia has been one of the best-performing stocks on the market since 2023. But after any outstanding performance, there are some high expectations. While Nvidia will likely achieve these goals, investors may be better off looking at companies that: It’s not as good as expected.

This is exactly what many billionaires have done in hedge funds. alphabet (google 0.93%) (GOOG 1.11%) It’s been a popular buy among some of the top hedge funds (and the billionaires who run them). Companies that improved Alphabet’s rankings in the first quarter included Ray Dalio’s Bridgewater Associates, Chase Coleman’s Tiger Global Management and George Soros’ Soros Fund Management.

Although Nvidia is a strong artificial intelligence (AI) choice, Alphabet is also a fantastic investment.

Alphabet has many ways to benefit from AI.

Alphabet has several ways to profit from the rise of AI, but the one that will likely yield the biggest results is advertising. In the first quarter, more than three-quarters of Alphabet’s revenue came from advertising. AI has already been used in advertising for some time, as it is used to pinpoint which types of ads will bring the highest returns to Alphabet customers.

Although it is becoming increasingly mainstream, AI has been around for a while. However, as a newer technology, generative AI has some useful features that allow people to use the technology without a programming background. One way Alphabet has deployed generative AI on its platform is by integrating it into its compliance software, Performance Max (PMax). This is essentially a checklist for advertisers to give their ads the best chance of success. In the past, it took multiple iterations to come up with an ad that met all the criteria. Now Gemini (Alphabet’s generative AI product) will automatically create ads that meet your criteria.

Gemini, Alphabet’s internally generated AI platform, had its fair share of problems, but those problems are starting to be resolved. Now with greater accuracy, customers can build models on the Gemini platform. Alphabet charges a fee to companies that do this, providing another source of cash flow.

Another way is Google Cloud. Running AI models requires significant computing power, and many companies either don’t have it or can’t justify spending millions of dollars on systems that aren’t used enough to justify the cost. Cloud computing is the answer to this problem. Anyone can rent computing space from a cloud computing provider like Google Cloud.

Whether it’s data storage or processing power, Google Cloud has you covered. Google Cloud, with access to the latest generation of Nvidia GPUs for model training, is a top contender in this space.

Alphabet is set to benefit from the latest wave of AI, making it a must-own stock. The price is also reasonable.

The stock doesn’t come with a huge price tag.

As many companies are experiencing tremendous change and growth due to AI, it is wise to look at a company’s future price-to-earnings ratio (P/E). We use analyst forecasts to determine what a company’s earnings will be over the next 12 months, and while this isn’t perfect, it’s still a good guide for investors.

Compared to Nvidia’s 41x earnings, Alphabet’s stock price is much cheaper.

GOOGL PE Ratio(Forward) data from YCharts

With 23x forward earnings, Alphabet is a reasonably priced stock. This compares to the broader market’s leading P/E of 21.5. S&P 500), Alphabet doesn’t hold much of a premium.

This is why Alphabet is a better choice than Nvidia. Because the price is reasonable, any business profits will go towards meeting high expectations and increasing the stock price rather than reducing the premium investors have to pay for the stock.

These billionaires think Alphabet is a good buy right now. Long-term investors seeking less risk exposure to AI should consider making Alphabet a top pick.