Alphabet Stock: A Potential Rival to Nvidia's AI Supremacy

Published Date::24/09/2024

Alphabet's growing AI capabilities and investments in Google Cloud make it a compelling competitor to Nvidia's market lead.

What happens when a company's largest customers become fierce competitors? Imagine that you own the largest chocolate chip company in the land. You sell to all the largest grocery chains because you have the best recipe. But every day, those stores pour money into finding the next-best recipe. If they create it, it could be a recipe for disaster (pardon the pun).

This is Nvidia's reality now. Companies like Microsoft, Alphabet, Meta Platforms, and Amazon are spending billions on Nvidia GPUs while also spending billions developing competing products. The key for Nvidia is to stay one step ahead. But it won't be easy with such deep-pocketed competitors.

Alphabet is serious competition. The company is developing and improving its competing AI product, the Tensor Processing Unit (TPU). It launched the sixth-generation TPU, Trillium, earlier this year. With five times more speed and 67% more energy efficiency, sixth-gen Trillium is a considerable leap over version five.

Trillium doesn't compete directly on the open market with Nvidia. Instead, customers rent space on Google Cloud, allowing Alphabet a broader customer base. The ability to rent space will be intense competition for Nvidia as companies can choose to rent rather than make capital investments. And, of course, Alphabet uses it internally.

Alphabet can pour capital into AI projects because it is hugely profitable and generates massive cash flow from its core advertising (Google Search and YouTube) and Google Cloud segments. These segments generated $84 billion in sales last quarter, a 14% year-over-year increase that came with $27 billion in operating cash flow.

Even after growing nearly fourfold since 2020, AI will increase Google Cloud's sales. For Alphabet, investments in AI, Google Cloud, and generative chatbots that rival ChatGPT, like Gemini, are crucial to the long-term path.

Microsoft Bing is challenging Google Search by harnessing ChatGPT through its billion-dollar investment in its creator, OpenAI. Plus, generative AI may encroach on the search market. However, there is no need to sound an alarm yet; Google Search grew 14% last quarter to $49 billion in revenue and remains far and away the market leader.

Alphabet stock looks like a bargain in a market where many tech stocks are trading well above historical valuations. The historical undervaluation, quality core business, and potential to compete for part of Nvidia's market dominance make Alphabet stock an intelligent buy for tech investors and those looking for GARP (growth at a reasonable price) companies.

       Alphabet Inc. is a multinational conglomerate created through a restructuring of Google in 2015. The company is involved in various sectors, including advertising, cloud computing, and artificial intelligence.

FAQS:

Q: What is Alphabet's market share in the AI chip market?

A: Alphabet's market share in the AI chip market is not explicitly stated, but it is developing its Tensor Processing Unit (TPU) to compete with Nvidia's market lead.

Q: How does Alphabet's Trillium TPU compare to Nvidia's H100 GPU?

A: Trillium has five times more speed and 67% more energy efficiency than its previous version, but it does not compete directly with Nvidia's H100 GPU on the open market.

Q: What is the potential impact of generative AI on Google Search?

A: Generative AI may encroach on the search market, but Google Search remains the market leader with a 14% year-over-year increase in revenue last quarter.

Q: Is Alphabet stock a good buy?

A: Yes, Alphabet stock looks like a bargain in a market where many tech stocks are trading well above historical valuations, with a quality core business and potential to compete for part of Nvidia's market dominance.

Q: What is the significance of Alphabet's investment in OpenAI?

A: Alphabet's investment in OpenAI is significant because it allows Microsoft to harness ChatGPT, a competing AI product, and potentially encroach on Google Search's market lead.

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