Shares of Amazon (AMZN +2.05%) hit an all-time high this week after rising 53% over the last 12 months. The company has rallied Wall Street with multiple quarters of stellar financial growth and an expanding role in artificial intelligence (AI).
Amazon Web Services' (AWS) dominance in the cloud industry grants the company a promising position in AI, as more and more businesses turn to such platforms for their AI needs. Meanwhile, the company has announced a venture into chip design. Amazon has an exciting outlook in AI and would likely make an asset to any portfolio over the long term. However, its stock growth over the last year hasn't exactly matched its earnings growth, meaning its shares are slightly overpriced for now.
Data by YCharts
This table shows Amazon has the highest price-to-earnings (P/E) and price-to-free cash flow ratios out of some of the most prominent names in AI software. The figures suggest Amazon is currently one of the worst-valued stocks among its peers.
However, two companies stand out as bargain buys in the space, indicating they could be worth considering over Amazon: Alphabet (GOOGL 0.41%) (GOOG 0.20%) and Apple (AAPL 0.01%). These tech giants are investing heavily in AI and could see significant gains as the industry develops.
So, forget Amazon and consider buying these two artificial intelligence stocks now.
1. Alphabet
Alphabet is a no-brainer at its current price point. The company has delivered significant earnings and stock growth over the last year, yet is trading at a bargain price compared to its peers. Meanwhile, Alphabet has the brand power, tech, and cash reserves to go far in AI.
The company's Google Cloud platform holds an 11% market share in cloud computing, compared to AWS' 31%. It's the third-largest cloud company after Amazon and Microsoft. However, it's outpacing both in growth.
In the first quarter of 2024, Google Cloud revenue jumped 28% year over year. Comparatively, the same period saw AWS sales rise by 17% and Microsoft Azure's revenue increase by 21%.
NASDAQ: GOOGL
Key Data Points
Alphabet is investing billions in AI and is in a solid position to build a lucrative AI ecosystem around its products. As the home of potent brands like Android, YouTube, and the many services under Google, Alphabet has countless opportunities to boost its business with AI. The company has the potential to offer more efficient digital advertising, add generative features to its smartphone operating system, better track viewing trends on YouTube, and create a Google Search experience closer to OpenAI's ChatGPT.
Data by YCharts
Moreover, this chart shows Alphabet is a thoroughly reliable stock. Over the last five years, it has beaten Amazon in stock and free cash flow growth. Meanwhile, it has delivered a similar rise in operating income. In addition to its far better-valued share price, Alphabet is a screaming buy right now and a better AI stock than Amazon.
2. Apple
Apple's stock has risen 14% since Jan. 1. The figure is considerably lower than its peers, with Amazon's and Alphabet's stocks rising more than 30% during that time. Apple missed out on the initial boom in AI, preferring to take a more gradual approach to the market. However, recent developments suggest it could come back strong in the coming years.
NASDAQ: AAPL
Key Data Points
Bloomberg reported on Jul. 2 that Apple is poised to get an observer role on ChatGPT developer OpenAI's board. The move follows an announcement at Apple's Worldwide Developer Conference in June that revealed its smart assistant Siri will receive a major AI overhaul, making it more intuitive and able to answer hundreds of new questions. Siri will now pass off certain questions to ChatGPT as part of the update, making the OpenAI platform available to users through its iPhones, iPads, or Macs.
According to Bloomberg, "The board observer role will put Apple on par with Microsoft Corp., OpenAI's biggest backer, and its main AI technology provider." Apple has been in steep competition with Microsoft for years, with both leaders in consumer tech and responsible for the two most used computer operating systems. As a result, Apple's seat at OpenAI's table could bring its AI technology more in line with its rival and boost its entire position in the industry.
Data by YCharts
This table shows that Apple is potentially better financially equipped than Amazon or Microsoft to expand in AI. The company is a cash cow, with far more free cash flow and operating income over the last five years. So, despite its slower approach to AI, I wouldn't be against it carving out a lucrative position in the sector over the long term.
Alongside its better-valued stock price, Apple is worth considering over Amazon stock this July.
