Nvidia’s revenue and profit growth have been nothing short of spectacular, but the business still faces risks.
These two internet giants continue to add artificial intelligence (AI)-powered features for their massive user bases and advertising customers.
Thanks to the stock market’s disappointing start to 2025, investors can buy shares at compelling valuations.
Nvidia has been a monster stock, rising 1,480% just in the past five years. But it experienced significant volatility this year. And as of this writing, shares trade down 17% since January 1.
The business has become the poster child of the artificial intelligence (AI) boom, providing powerful graphics processing units (GPUs) that help run training and inference models. Revenue and earnings are soaring.
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However, Nvidia faces risks. Its business could slow dramatically in an economic downturn. Its largest customers are working on their own chips. Competition and supply chain challenges are also things to worry about.
Investors might be looking at other options. Is it time to forget about Nvidia and instead buy these two AI stocks right now?
Internet giants
When looking at AI stocks to add to your portfolio, it's a smart idea to consider companies that have long dominated the internet economy. I'm talking about Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) and Meta Platforms(NASDAQ: META). Both businesses just reported Q1 financial results that came in better than expected, showcasing strong momentum.
Alphabet owns some of the most popular internet platforms on the face of the planet. For example, streaming service YouTube has an estimated 2.5 billion monthly active users.
Meta just revealed that its family of apps had 3.43 billion daily active users in the first quarter. It's hard to believe that this already gargantuan sum is 80 million more than just three months ago.
Having massive user bases has given both Alphabet and Meta an edge when it comes to introducing AI products and services. According to Alphabet CEO Sundar Pichai, "Fifteen of our products with a half-billion users now use Gemini models." AI helps provide thorough responses in Search and traffic info in Maps, for instance.
CEO and founder Mark Zuckerberg of Meta, on the other hand, said, "We're making good progress on AI glasses and Meta AI, which now has almost 1 billion monthly actives." The social media juggernaut has plans to launch a separate AI app.
These businesses are focused on adding AI functionality for their user bases. However, they haven't forgotten about the key customer group, which is advertisers, offering AI features that can be utilized in their campaigns.
Vast resources
Investing in AI infrastructure isn't cheap by any means. This highlights just how critical it is to have access to capital for those enterprises that want to stay ahead of the curve.
Here's where these two companies truly shine. Alphabet and Meta raked in $16.6 billion and $34.5 billion in net income, respectively, in the first quarter. Their profit margins are incredible.
And if we look at these businesses' balance sheets together, they have a combined $125.8 billion in net cash (cash, cash equivalents, and marketable securities, minus long-term debt). In other words, there are essentially unlimited financial resources that these companies can tap.
Alphabet plans to spend $75 billion on capital expenditures in 2025, while Meta just upped its target to a range between $64 billion and $72 billion. Critics will argue that the potential financial return of all this spending is uncertain. However, it's worth taking the risk to ensure they have a chance to become the AI leaders of tomorrow.
Time to buy the dip
The uncertain economic environment is having a negative impact on investor confidence. Risk-averse market participants might believe it's time to be a bit more cautious.
But here's where the opportunity lies. Shares of these great businesses can be purchased at more attractive valuations. Alphabet trades at a forward P/E ratio of 17, below Meta's 22 multiple. It's not every day that their stock prices are off more than 20% from their peaks.
Therefore, to gain AI exposure, investors might want to take a closer look at these tech giants.
Should you invest $1,000 in Alphabet right now?
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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 has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
