The stock market is full of companies involved with artificial intelligence (AI). However, some of them are riskier picks than others. As a result, if I were allowed to pick only one, I wouldn't go with an all-or-nothing AI business. Instead, I'd want to pick one that could be successful regardless of how the AI trend shakes out.
With that in mind, if I could own only one AI stock, I'd pick Alphabet (GOOG -0.75%) (GOOGL -0.77%).
Alphabet has multiple AI investments
CEO Sundar Pichai declared Alphabet an "AI-first" company in 2016. His vision for the company was for Alphabet to be both a provider of AI tools and a user, and it succeeded in that vision. However, it has a ways to go.
At first, Alphabet seemed to have lost the generative AI race, with OpenAI's ChatGPT having beaten it to the punch. However, Alphabet's Bard has emerged as a worthy competitor. Additionally, Alphabet recently launched its latest generative AI model, Gemini, which, by many measures, is the best available. It's the first AI model to outperform human experts in the massive multitask language understanding benchmark, and it topped many of its competitors in other areas like code, math, and reasoning.
If its Gemini model becomes widely used by generative AI platforms, Alphabet will realize a lot of revenue down the road.
Another part of the AI equation for Alphabet is its cloud computing offering, Google Cloud. Cloud computing is a massive market and is expected to grow from a $626 billion market in 2023 to $1.27 trillion by 2028, according to Markets and Markets.Part of this is due to an expected AI boom, which will turn many businesses into massive cloud computing users.
Cloud computing allows clients to rent out computing power and data storage space, which are needed for powerful AI models. But clients often don't know how much they'll need when they start, how often they'll use it, or if they have the support staff necessary to build and maintain a data center, so renting out this capability from a cloud computing provider (like Google Cloud) has become popular.
However, neither of these is Alphabet's largest business segment; that's advertising.
Alphabet recently announced a reorganization in its advertising division due to its plans to implement AI more heavily in this area. This could increase both revenue and efficiency.
Alphabet has multiple AI irons in the fire, and each looks likely to help it over the long term. As a result, Alphabet looks like a top buy right now.
Alphabet's stock is still reasonably priced despite a strong rally
Alphabet is a mature business, so I'll use its trailing and forward price-to-earnings ratio to show how the stock is valued compared to historical averages.
GOOGL PE Ratio data by YCharts
Alphabet's valuation rose significantly in the past few months thanks to a broader stock market rally, but it's still well below its decade-long historical average. Furthermore, at 24 times forward earnings, its price is reasonable for a company with Alphabet's growth expectations.
There may be other AI investments with higher upside, but Alphabet is positioned to provide market-beating returns with less risk, so it takes the title of my top AI stock to own. However, there are other fantastic AI investments out there, and you should own some of them as well.
