There are numerous ways to bet on AI (artificial intelligence). But two paths are particularly intriguing: the AI technology suppliers and the beneficiaries of AI at scale. In other words, you can buy the company selling the "picks and shovels," or the chips and systems powering AI. Or, alternatively, you can invest in a company that integrates AI into existing products, services, and infrastructure used by billions of people.
Nvidia (NVDA 1.32%) and Alphabet (GOOG 1.39%)(GOOGL 1.38%) fit these buckets nicely, with Nvidia of course being the technology supplier and Alphabet being the scaled technology platform. Both stocks have, unsurprisingly, been big winners as AI demand has surged.
But with expectations now sky-high for both companies, the biggest question now is which stock offers the better risk-reward setup from today's price.
Imag source: Getty Images.
Nvidia's growth trajectory remains mind-boggling
Nvidia's most recent quarter shows why the company has become the face of the AI boom, as the maker of the leading graphics processing units (GPUs) behind AI data centers. In its third quarter of fiscal 2026 (the period ending Oct. 26), Nvidia reported revenue of $57.0 billion, up 62% year over year. Data center revenue -- the part of the business most tied to AI servers -- was $51.2 billion, up 66%. And capturing the company's pricing power, Nvidia's gross margin for the period was a staggering 73.4% on a generally accepted accounting principles (GAAP) basis. Earnings per share for the period rose 67% year over year and 20% sequentially to $1.30.
NASDAQ: NVDA
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Those are extraordinary numbers. And they could have been better; management noted that its cloud GPUs were sold out at the end of the period.
AI is becoming a bigger factor in Alphabet's growth profile
Alphabet's latest reported quarter also showed clear AI-driven momentum. But this momentum is accompanied by broad-based momentum across a range of lucrative Alphabet services, including online search, advertising technology, YouTube, Gmail, and more.
Helped by double-digit growth in search, YouTube, Google Cloud, and its subscriptions, platforms, and devices segment, Alphabet's third-quarter revenue rose 16% year over year to $102.3 billion, and earnings per share increased 35% to $2.87.
More importantly for the AI debate, Alphabet's Google Cloud, or its cloud computing business, is becoming an increasingly important catalyst for the overall company. Aplabet's cloud revenue increased 34% year over year to $15.2 billion during the quarter. And Cloud operating income rose 85% to $3.6 billion, with the segment's operating margin expanding to 23.7%.
Additionally, Google Cloud's backlog is actually growing far faster than its revenue. Google Cloud backlog rose 46% sequentially and 82% year over year to $155 billion in Q3. With its cloud backlog growing this fast, it bodes well for the segment's growth trajectory in 2026 and beyond.
NASDAQ: GOOG
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Then there's the Alphabet's new agreement with Apple (AAPL 2.05%). In a joint statement, Alphabet and Apple said they entered a multi-year collaboration in which the next generation of Apple Foundation Models "will be based on Google's Gemini models and cloud technology," empowering "future Apple Intelligence features, including a more personalized Siri" that will launch on Apple devices this year.
This is a meaningful distribution win for Alphabet. Apple devices represent one of the biggest consumer technology platforms in the world, with well over 2.2 billion active devices. If Gemini is a foundational piece of how Siri and other Apple Intelligence features work, it gives Alphabet another way to stay central in how people interact with AI -- even when they aren't using an Android phone or opening a Google app. In addition, this vote of confidence from Apple comes at a critical time when enterprises, developers, and consumers are still trying to decide which company's AI models are worth cozying up to.
For Alphabet, AI is notably not just some moonshot effort but a substantial contributor to the overall company's financials. Yes, online search remains its bread and butter. But cloud computing is also moving the needle for the company now.
The better buy for 2026
Ultimately, both companies are executing well, and both have great potential. The difference comes down to valuation and how much perfection is already baked into each stock.
Alphabet currently trades at about 30 times earnings, while Nvidia boasts a price-to-earnings ratio of 46. Sure, Nvidia's business is growing faster than Alphabet's, but is Nvidia's business as sustainable? Historically, the semiconductor industry has been cyclical. Further, it's clear that Nvidia is currently benefiting from a boom in demand for AI computing power as almost every major tech company in the world is ramping up their spending on cloud infrastructure simultaneously. This is exciting, but it's also a reason to be cautious. What happens when this spending cools or takes a breather? In short, I think that Alphabet's business model is both more diversified and less cyclical than Nvidia's. For these reasons, even though Nvidia is a faster-growing business than Alphabet, I don't believe it deserves to trade at a higher price-to-earnings multiple than Alphabet does.
With this said, even though I think Alphabet is a better investment than Nvidia, this doesn't mean that Alphabet shares are a clear bargain. In fact, I think Alphabet stock is a bit risky at its current valuation. Like Nvidia, Alphabet faces risks. Its cloud business, for instance, could slow if the current AI boom proves to be unsustainable. Additionally, Alphabet's dominating presence in online search tends to attract regulatory scrutiny. Finally, Alphabet's business is heavily tied to advertising, and advertising, in turn, is closely tied to the macroeconomic environment. If the economy slows or -- even worse -- enters a recession, advertising could take a hit, and this could pressure the stock.
Still, the combination of double-digit revenue growth, improving Cloud profitability, and a Gemini distribution boost through Apple makes Alphabet stock look like an overall good investment for investors with a high risk tolerance who are willing to hold for the long haul.
