Artificial intelligence (AI) has been around for a while, but it has undoubtedly leaped into the mainstream with the popularity of generative AI tools like OpenAI's ChatGPT. With this new surge of excitement and interest, we've seen legacy companies pivot to making AI a focal part of their business, and plenty of newer AI companies hit the scene with big promises.
The issue is that the AI boom has ushered in a lot of AI stocks that are headed nowhere fast. And unfortunately, they're taking investors along for the ride as people search for the "next big thing" in the bargain bin via penny stocks. There's seemingly no shortage of AI penny stocks in the market right now.
Yet, these stocks often come with more risk than is needed for someone looking to invest in AI and take advantage of the emerging technology. Instead, it's wise to go with an established AI leader that has stood the test of time and continues to be at the forefront of innovation.
Image source: Getty Images.
A full-stack AI company
Alphabet (GOOG 1.68%)(GOOGL 1.66%) might be best known for Google and YouTube, but it has plenty of other businesses and ventures under its umbrella that operate in virtually all phases of the AI pipeline outside of manufacturing AI chips.
To begin, DeepMind is an AI research lab that has made breakthroughs that modern AI relies on. This gives Alphabet in-house access to some of the smartest people in the field. It also owns dozens of data centers (and plans to build plenty more), allowing it to process the massive amounts of data its AI needs.
Alphabet designs its own advanced AI chips, reducing its reliance on companies like Nvidia, which charges premiums and could have issues meeting demand in the near future. It has its own cloud platform, Google Cloud, which is currently the third largest in the world by market share.
Then there's Alphabet's consumer-facing applications, like Gemini, and its ecosystem of software products that allow it to integrate its AI models into tools people already use daily.
NASDAQ: GOOGL
Key Data Points
Alphabet has a key advantage not easily replicated
One thing working in Alphabet's favor when it comes to its AI tools is the amount of data it has.
Google Search is essentially the gateway to the internet, collecting billions of questions and getting an inside look into what people are interested in; YouTube has billions of hours of data that give insight into what people enjoy watching and what topics are trending; and Maps has tons of data on how the world moves and the places people are interested in.
That's only a few sources, too. There's also the Android operating system that is on billions of phones, and Gmail, which millions of people use. AI is only as good as the data used to train it, and Alphabet has more data than virtually any other company in the world.
With its data advantage, Alphabet has a chance to make its AI models the most accurate and nuanced of all.
No penny stock can compete with Alphabet's finances
One thing you'll never have to second-guess with Alphabet is its ability to make money. In the third quarter, it generated $102.3 billion in revenue (up 16% year over year and its first-ever $100 billion quarter), and its net income totaled nearly $35 billion (up 33% year over year). Both of those have grown impressively over the past five years.
GOOGL Revenue (Quarterly) data by YCharts.
Alphabet is a certified cash cow, with nearly $99 billion in cash, cash equivalents, and marketable securities, giving it the capital to continue investing in its AI infrastructure and capabilities. That's what I'd look for in an AI stock instead of essentially gambling on penny stocks, hoping that it works out.
