There has been intense focus on artificial intelligence (AI) in 2023, with a race among companies -- big and small -- and countries to rapidly deploy and develop applications based on this technology.
That's not surprising since AI is expected to become a crucial driver for the global economy in the long run. Goldman Sachs, for instance, predicts that AI could boost the world's economy by $7 trillion over the next decade, driving a 15% increment in productivity.
That's why there is a long line of customers for Nvidia's graphics processing units (GPUs), with the company's flagship H100 chip having a waiting period of at least six months for buyers.
With a H100 processor reportedly costing $40,000 and up, analysts are anticipating the company's revenue to at least double in the current fiscal year to $54.6 billion. Its adjusted earnings are expected to jump from $3.34 per share in the company's fiscal 2023 to $10.76 in the current year.
Investors will have to pay a pretty penny to buy into Nvidia's mind-numbing growth if they don't own the stock already since it trades at 33 times sales and 106 times trailing earnings. But there are other ways to play the AI revolution that aren't as expensive as Nvidia.
Alphabet (GOOG -3.33%) (GOOGL -3.37%) is one such option that isn't just cheap but is also in a dominant position to make the most of the AI boom across the globe. Let's look at why.
Alphabet has been rapidly adopting AI
Alphabet fell behind rival Microsoft in the AI race initially as the latter quickly capitalized on its investment in OpenAI, the AI start-up in which it has reportedly invested $13 billion. OpenAI's ChatGPT was a raging hit, as evident from the rapid growth in the chatbot's customer count.
Microsoft integrated OpenAI's AI algorithm in several applications, including the Bing search engine, the Azure cloud, and the 365 suite of productivity apps.
Alphabet, meanwhile, fumbled as its ChatGPT competitor, Bard, didn't make a positive impression when it was unveiled. But the company has quickly recovered by deploying AI across multiple offerings. And now, it's looking to push the envelope further with a new generative AI platform called Gemini.
According to the tech-focused business site The Information, Alphabet subsidiary Google is reportedly testing the Gemini conversational AI software with select companies. The site also reports, according to Reuters, that Gemini consists of multiple large language models (LLMs) that will allow users to create chatbots, drafts of email, music lyrics, news stories, text summaries, images based on text prompts, and even help engineers write code.
The report also said that Alphabet plans to make this service generally available through the Google Cloud Vertex AI service, which is a machine learning (ML) platform in Google Cloud that allows users to train and deploy AI models and applications. Users can also customize LLMs on this platform as needed to make AI applications.
So, Alphabet seems to be preparing a marketplace of LLMs on Google Cloud that could make it easier for customers to train and deploy AI applications without having to invest a lot of money in expensive hardware. For example, customers can simply purchase a subscription or credits for using the Google Cloud AI infrastructure instead of having to spend tens of thousands of dollars on expensive graphics cards, which are difficult to procure right now.
The demand for training and deploying AI models using cloud-based infrastructure is set to snowball in the next five years. Mordor Intelligence estimates that the cloud-based AI market could generate $207 billion in annual revenue in 2028, up from just $51 billion estimated this year.
So Alphabet's move to integrate more AI services on the Google Cloud platform is likely to help improve its share of the cloud infrastructure services market. Google Cloud controlled 7.6% of the market at the end of 2017 and 10% at the end of 2022. By the second quarter of 2023, that share reportedly increased to 11%, according to Synergy Research.
Google Cloud generated $26 billion in revenue in 2022, up 37% from the prior year, so there is a massive opportunity for the company to increase its revenue thanks to the AI-focused cloud market.
The company has started monetizing Duet AI, Alphabet's AI-powered productivity tool that allows users to write code, manage databases, prevent cybersecurity threats, and manage applications. Google is charging $30 per user per month from its enterprise customers for Duet AI, and it could gain traction quickly among customers as third-party research suggests that AI could boost employee productivity by as much as 66%.
Amazon could deliver stronger-than-expected growth
The proliferation of AI and Alphabet's solid position in the digital advertising market could power stronger growth for the company, which finished 2022 with $283 billion in revenue, an increase of 10% over the prior year. It is expected to sustain this momentum in 2023 and beyond.
GOOGL revenue estimates for the current fiscal year data by YCharts.
Assuming Alphabet does hit $376 billion in revenue in 2025 and maintains its price-to-sales ratio of 6, its market cap could exceed $2.25 trillion, a 30% jump from current levels. The company could clock faster growth thanks to AI and deliver stronger long-term upside, which is why investors would do well to buy this stock while it is still trading at a relatively attractive level considering how richly valued other AI stocks like Nvidia are.
