Although many point to Nvidia (NASDAQ: NVDA) as the best artificial intelligence (AI) investment right now, I’m staying away from it. Because Nvidia is a hardware company, this strength will eventually fade, and investors will be stuck holding a stock valued for a business it no longer has.
Instead, a far better alternative to Nvidia is Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL), the parent company of Google. I’ve got four reasons why Alphabet will be a much better long-term investment today than Nvidia, and why its business is more sustainable.
1. Alphabet’s products are subscription-based
As mentioned above, Nvidia is a hardware company. Nvidia’s graphics processing units (GPUs) are the best in class for AI model training. However, once it sells the GPU, that’s it. Unless clients come back to build additional supercomputers or upgrade their system down the line, Nvidia’s sales are a one-time benefit.
Alphabet is a massive Nvidia GPU buyer, but it has set up a subscription model using these products. One of Alphabet’s most exciting segments is Google Cloud, its cloud computing division. By filling data centers with powerful Nvidia GPUs, clients who need access to extreme computing power can rent it from Alphabet. This allows these clients to stay asset-light and quickly scale up or down according to their needs. Because the revenue stream from this business is recurring, it’s far more sustainable.
Additionally, Alphabet has other AI products, like its generative AI model Gemini. This model beats the competition in multiple tests and will create a new revenue stream for Alphabet as it’s implemented into various programs.
While Nvidia’s one-time sales may provide flashy year-over-year growth figures in boom times, they’re not as sustainable as Alphabet’s subscription-focused approach.
2. Nvidia saw the first wave of AI benefits
Because Nvidia is a pick-and-shovel play, it saw the first wave of AI demand. With companies like Alphabet ordering thousands of GPUs to outfit their data centers, it experienced a sudden demand rush. It’s not advisable to invest in a company in the middle of a demand rush, as many lofty expectations are already baked into the stock.
While Alphabet has seen increased demand for cloud computing and generative AI, it’s in the early stages. This means the rush hasn’t happened for Alphabet yet, making me more excited to get into Alphabet’s stock before the big move comes along.
3. Alphabet’s stock is far cheaper than Nvidia’s
Another issue with Nvidia’s stock is how expensive it has gotten. With Nvidia’s price-to-earnings (P/E) ratio sitting at a much higher level than Alphabet’s valuation, it has a lot of expectations built in.
GOOGL PE Ratio Chart
Alphabet doesn’t have nearly the same hype around its stock and trades at about the same level as the broader S&P 500, which has a forward P/E of 20.
If Alphabet maintains its status quo, it will still be a market-beating stock. If Nvidia misses expectations, the bottom will fall out of the stock.
4. Alphabet is more balanced if AI fizzles out
Finally, Alphabet is far more diversified than Nvidia. If this AI trend turns out to be a bust (I don’t think it will be), then a large swath of Nvidia’s business will evaporate. This wouldn’t be the first time this has happened to Nvidia, as multiple crypto crashes have caused the company’s revenue to drop rapidly when demand fell.
Although many investors (including myself) are excited about Alphabet’s AI prospects, at the end of the day, nearly 80% of its revenue comes from advertising services. Advertising has been around for thousands of years and likely won’t fade away anytime soon.
So, regardless of how successful AI proliferation is, Alphabet should be fine.
To me, Alphabet is a much better investment right now than Nvidia. While Nvidia may see strength throughout the rest of 2024, it will likely eventually experience a drop in demand due to its non-subscription business model. If you like roller coasters, Nvidia may be a better stock, although you may never return to the highs you experience early on. But if you like a steady, market-beating ride, Alphabet is a far better pick.
Should you invest $1,000 in Alphabet right now?
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
