Artificial intelligence (AI) isn't new, but the technology seems to have broken new ground recently with powerful generative AI apps like ChatGPT. AI has the potential to revolutionize many industries, so it's not surprising to see companies in various sectors, including healthcare, rushing to adopt it.
Which of those corporations will rise to the top of this category? It's hard to say, but one AI company looks like a screaming buy for investors: Alphabet (GOOG 9.96%) (GOOGL 10.22%). Let's find out why Google's parent company is an excellent AI stock to hold for good.
This isn't Alphabet's first AI rodeo
Alphabet has been using the technology for years to improve its business in various ways. Here are just a few examples.
YouTube is one of the most popular video platforms in the world. In June, it grabbed 8.8% of viewing time in the U.S., according to the research company Nielsen.
One way YouTube can keep viewers glued to their screens is with its AI-powered algorithm that constantly suggests videos they might like based on their viewing habits. So the more they keep watching, the more attractive a platform YouTube is for advertisers.
The company has also improved Google with various AI-inspired tweaks to its already excellent and dominant search engine. For instance, in 2021, Alphabet announced an AI update called MUM (short for multitask unified model) to help users get faster and better results for complex questions that may not have a direct, simple answer.
The company is also getting in on the generative AI craze. After ChatGPT made its grand debut, Alphabet released its competitor, Bard. It proved to be a bit disappointing, but investors should remember that the tech giant has worked on AI for years, and it isn't that far behind Microsoft-backed OpenAI. It wouldn't have been able to release Bard that quickly if it were being left in the dust.
In 2014, Alphabet acquired an AI start-up called DeepMind. It recently merged this with Google Brain, an internal AI research team.
So the focus on AI is becoming clearer for Alphabet, and given the exciting opportunities, that should bode well for investors. According to some estimates, the generative AI market will register a compound annual growth rate of 35.6% through 2030.
Alphabet could be one of the winners in this race.
Alphabet is more than an AI stock
Its bet on AI could be lucrative in 10 years, but the company has other growth opportunities. So, as an "AI bet," it might be safer than companies that rely extensively (or entirely) on the technology to make money.
Perhaps the most important growth opportunity for Alphabet is cloud computing, a market where it is one of the leaders. Google Cloud held an 11% share of the market in the second quarter, good enough for a third-place podium finish.
The switch to the cloud should continue unabated since it helps decrease business expenses and costs, creating higher profits. Cloud computing provides a fantastic long-term opportunity for Alphabet, but Google and YouTube should also remain among its most significant growth drivers.
"Google" has become a verb, a sign of the strength of its brand. And that's a powerful economic moat that YouTube also has. Both of them benefit from the flywheel effect as the value of these platforms increases with use.
It is easier to see with YouTube, but Google's flywheel effect comes from the vast amount of data it collects from searches that allows it to make its engine more accurate. The more users, the more data, and the more accurate the results. That, in turn, brings in more users, and so on.
To top it all off, Google and YouTube are among the most visited websites in the world, and as long as that continues, advertisers will flock to these platforms.
Add that to the company's ability to innovate, and it is difficult to see Alphabet losing its edge anytime soon. That's why, for investors looking to profit from AI, it is one of the best stocks to buy and hold for good.
