Alphabet (GOOG 3.28%) (GOOGL 3.85%) has become one of the world's most important artificial intelligence (AI) companies. What investors initially saw as a big potential risk has instead turned into a big tailwind.
And while Nvidia and Palantir Technologies get plenty of the hype these days, Alphabet has the opportunity to be worth more than both of them combined before the decade is out.
Nvidia currently sits at a $4.3 trillion market cap, while Palantir is around $425 billion. Alphabet is valued at roughly $3 trillion, but it has a real chance to grow significantly from here, while the other two face some risks.
Alphabet's opportunities
Alphabet's opportunities start with search and AI, which in some cases are melding into one. The company already owns the front door to the internet for billions of people, and most users don't even think about it because Google is just the default engine on most devices.
Its ownership of the Chrome web browser and Android operating system, together with its revenue-sharing agreement with Apple, gives it a huge distribution advantage.
NASDAQ: GOOGL
Key Data Points
AI, meanwhile, is not replacing search; it's enhancing it and complementing it. Alphabet says its AI Overviews are now being used by more than 2 billion people a month, and its new AI Mode, which is now just being rolled out globally, allows users to toggle between traditional results and chatbot-style answers without switching apps.
It has also added multimodal AI features like Lens and Circle to search. These are just leading to more queries, often with a commercial intent from shoppers, which feeds into its massive ad network.
This kind of seamless integration means the company doesn't need to rewire consumer habits the way competitors do; it only needs to make the products that people already use more useful. The fact that its Gemini app passed ChatGPT as the most downloaded app in the Apple App Store shows that the company is gaining real traction in AI on the consumer side.
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Then there is Alphabet's biggest growth driver, its cloud computing business. The company is seeing both strong revenue growth and huge operating leverage as it scales up. This was seen last quarter when Google Cloud revenue jumped 32% and operating profit more than doubled.
What sets Alphabet apart in cloud computing is that it owns the full stack, from its world-class Gemini AI model to custom AI chips, to top-notch analytics and software, to one of the largest private fiber networks in the world. That vertical integration means better performance at lower costs. The company's pending acquisition of Wiz will also give it a huge opportunity to cross-sell leading cloud cybersecurity to its customers.
Investors should also remember Waymo, which could become one of its biggest growth drivers in the next five years. Robotaxis have been hyped for years, and with Waymo, Alphabet is currently building out a large fleet across the U.S.
It has a first-mover advantage with commercial services running in several major U.S. cities, while being tested in others. If autonomous driving takes off in the next five years, Waymo could become another huge business.
Meanwhile, Alphabet's stock is one of the cheapest among megacaps, at a forward price-to-earnings ratio (P/E) of less than 23 times 2026 analyst estimates. Between its growth opportunities and the potential for multiple expansion, the shares could have a lot of upside in the next five years.
Palantir and Nvidia face risks
Now contrast that with Palantir. It has been executing well, with its Artificial Intelligence Platform (AIP) in high demand from U.S. commercial customers, while it is continuing to win big government contracts.
However, the stock's valuation is at nosebleed levels. With a forward price-to-sales multiple (P/S) of more than 100, the stock would still be expensive even if it that figure were cut in half. This is a valuation that leaves no margin for error; one slipup on growth, and the stock will get punished.
And then there is Nvidia. Undoubtedly, it has been the biggest winner in the AI boom, but investors should not forget it is still a hardware company. Hardware sales are not recurring revenue, since every chip sold has to be replaced by the next cycle of spending, and once customers find a cheaper or more efficient solution, the shift can happen fast.
We've seen this happen before. The company's graphics processing units (GPUs) were once the primary chips used in Bitcoin mining until ASICs (application-specific integrated circuits) that did the job faster and cheaper came along. Practically overnight, mining Bitcoin with GPUs became irrelevant.
While ASICs aren't likely to completely replace GPUs for AI workloads, they are a rising threat, especially as the market moves more toward inference, which is a continuous cost -- and hyperscalers (companies that own large data centers) are highly motivated to lower computing costs. With inference not nearly as technically demanding as training, Nvidia's CUDA software moat is not as wide in this area, and more and more large companies have started developing their own custom AI chips.
Nvidia knows this, which is why its recently-announced $100 billion OpenAI partnership looks more defensive than offensive. OpenAI is one of Nvidia's biggest customers, but it has also been developing its own chips. With this investment, Nvidia is effectively paying to keep OpenAI tied to its GPUs, which is a risky kind of circular financing that echoes what Cisco did during the internet bubble.
Nvidia's dominance in AI infrastructure today is unquestioned, but the upside in the stock could be limited if customers keep moving toward in-house AI chips.
Put it all together, and Alphabet looks like the company best positioned to become the largest in the world by 2030, with a good chance of being bigger than both Nvidia and Palantir combined.
