At a market cap of $1.75 trillion, Alphabet (GOOG 0.81%) (GOOGL 0.72%)  is without a doubt one of the most dominant companies in the world. But in recent times, it has been dealing with macro headwinds that have impacted the digital advertising market. Moreover, investors are trying to figure out how the future of artificial intelligence (AI) will impact the business. 

As of this writing, Alphabet shares remain 8% off their all-time high, even though they have risen by 57% this year (as of Oct. 10). So is now the right time to buy this FAANG stock? Here's why I think this is a smart move for investors.

The potential for artificial intelligence

Investors are excited about the potential for AI. More specifically, they're looking at ways to boost their portfolios with exposure to this new technology, which could be revolutionary.

It's easy to only focus on start-ups and what they're doing in the space. But investors can't forget about the leading tech companies, like Alphabet, that are poised to be ahead of the curve when it comes to AI.

When ChatGPT first came out, some naysayers pointed to how Alphabet's Google Search was going to be disrupted. And this would deal a huge blow to the company's ad revenue. But the market seems to always overreact to news in the short term, and this time wasn't any different. It's certainly a bit premature to predict the end of Alphabet as we know it. In fact, investors might struggle to find a business that's better positioned than this one to benefit from the rise of AI, mainly because of the billions of users who touch its products on a daily basis.

Google Search, YouTube, Google Cloud, Android, and Waymo, for example, give Alphabet a ton of opportunities to launch, test, and iterate on various AI initiatives. And CEO Sundar Pichai has been focused on AI for a while now, integrating the technology into numerous offerings that people use on a daily basis. "This is our seventh year as an AI-first company, and we intuitively know how to incorporate AI into our products," he said on the second-quarter 2023 earnings call. 

To stay ahead of the game, the management team's capital expenditures will be directed toward building out technological infrastructure, like data centers, to strengthen its AI capabilities.

Alphabet's competitive advantages

Earlier, I touched on how macro issues have proven to be a headwind for Alphabet. Revenue was up 41.2% in 2021, a growth rate that slowed to 9.8% in 2022 and 4.9% through the first six months of 2023. I bet that shareholders aren't used to seeing single-digit gains from this business. 

The market for digital advertising is a bit more cyclical than investors had hoped. It makes sense why. If they believe the economic picture is uncertain, marketing executives will pare back spending to conserve valuable financial resources. As the leader in the industry, Alphabet will also feel the pinch. 

But I believe these challenges will prove to be short-lived. Consequently, Alphabet remains a dominant internet enterprise if we zoom out and focus on the long term. 

The company's competitive advantages are noteworthy when we think about the bigger picture. With so many popular products and services, especially with Search, Cloud, and YouTube, just think about the immense amounts of data that Alphabet collects. I don't think any other business in the world has the treasure trove of insights that this one does. Yes, it raises privacy issues with regulatory agencies. That can't be denied. But there's no doubt that Alphabet's data advantage, combined with the AI push, will only help improve its offerings, further maintaining its lead.

Alphabet also benefits from having powerful network effects. The search business has three key stakeholders, including users, website publishers, and advertisers. The massive three-sided platform constantly gets better as it grows in size, which gives subscale search rivals really no chance to compete effectively with Google. With viewers, content publishers, and advertisers in the mix, YouTube has network effects, too.

These competitive advantages should give investors the confidence they need about Alphabet's future. And this makes the stock a smart buy right now.