No topic has garnered more attention in the past couple of years than the sudden rise of all things artificial intelligence (AI). Business leaders are trying to position their companies to take advantage of this technology, while governments will probably lag when it comes to regulatory clarity. And then there are investors who want to find ways to profit from the trend.
It's a good idea to look at dominant tech companies to gain exposure. For example, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META) are investing aggressively to bolster their competitive positions. But which of these internet giants is the better AI stock to buy right now?
Getting even more powerful
Alphabet was using AI and machine learning as far back as 2001, when its Google Search engine would help users with spelling. Nowadays, AI permeates the company's DNA. "All six of our products with more than 2 billion monthly users now use Gemini," CEO Sundar Pichai highlighted on the Q2 2024 earnings call . Gemini is the company's AI model.
It's worth mentioning that the business likely isn't going to introduce a new game-changing AI-based use case. Instead, the technology will be used to bolster Alphabet's already popular offerings. For example, since adding AI overviews to Search, management mentioned it can broaden the kinds of queries that can be answered.
And when it comes to Google Cloud, Alphabet provides clients with numerous solutions. The business benefits from the convergence of off-premises IT spending, as well as companies' increasing AI needs. Google Cloud is set to be an indispensable partner for its customers, more so than it already is.
With its wildly popular family of apps, Meta is used by billions of people every single day. This immediately gives it unmatched reach to launch and test AI features, receiving valuable feedback that can direct product development efforts.
For these users, the business released Meta AI, which is essentially a powerful chatbot assistant. Users can generate images, find food recommendations, and learn about new topics. And Meta AI is fully integrated in the Ray-Ban smart glasses, giving its wearers a seamless experience to interact with the technology.
Meta generates virtually all of its revenue from digital advertisers, so it needs to cater to this valuable group. "Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we're going to go do the rest for them," founder and CEO Mark Zuckerberg said on the company's Q2 2024 earnings call.
Alphabet and Meta might be two of the most financially sound businesses any investor can own if they want to bet on the AI craze. They both generate tens of billions of dollars in free cash flow each quarter.
And their balance sheets are in pristine condition. This gives them unlimited resources to keep investing aggressively in expanding network infrastructure, which is something they are not holding back from.
The best course of action
Clearly, both Alphabet and Meta are in enviable positions when it comes to the AI race. They already have thriving platform businesses with billions of users to introduce new features to. And there aren't many businesses with the talent and financial resources these two have.
Investors should consider their valuations as part of the analysis. Alphabet trades at a forward P/E ratio of 22, while Meta goes for a forward P/E multiple of 25. These are the two cheapest stocks in the "Magnificent Seven," which is obviously a compelling proposition.
If I had to pick a single winner, I'd go with Alphabet. But I see absolutely no reason why an investor couldn't buy both stocks and have adequate portfolio exposure to the ongoing AI trend.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0