Alphabet (GOOGL +4.79%) (GOOG +4.96%) has already proven itself to be one of the most innovative companies in the area of artificial intelligence (AI). The company has developed one of the best AI models with Gemini, and it's a clear leader in AI video generation and image generation with Veo3 and Nano Banana. In fact, OpenAI recently shut down its competing AI video-generating app Sora, essentially ceding the market to Alphabet.
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Meanwhile, the company is also at the forefront of custom AI chips with its tensor processing units (TPUs). It developed these chips with the help of Broadcom more than a decade ago, and it has built an entire hardware and software ecosystem around them that not only provides optimal performance but gives it a huge structural cost edge. With its TPUs, Alphabet can train Gemini and run inference at a much lower cost than competitors that largely rely on graphics processing units (GPUs) from Nvidia. This is just an enormous advantage that grows over time as more and more computing power is required for AI.
Alphabet's latest AI announcement, meanwhile, is set to expand its cost advantage even more. The company recently announced a new AI memory compression algorithm called TurboQuant that can significantly lower key-value (KV) cache memory needs and increase processing speeds with no data quality loss. This basically will help AI remember more information and help reduce cache bottlenecks. It said the algorithm will reduce working memory by at least 6x while increasing processing speeds by 8x.
NASDAQ: GOOGL
Key Data Points
Cloudflare CEO Matthew Prince called the announcement Alphabet's DeepSeek moment, referencing the AI model efficiency gains the Chinese company was reportedly able to achieve despite supposedly training its models on non-state-of-the-art, cheaper chips. Meanwhile, many people joked about the technology's similarities to the one developed by the fictional start-up Pied Piper in the popular HBO series Silicon Valley, which aired between 2014 and 2019. In the show, the company Hooli, which was based on Google, tried to actively strong-arm Pied Piper into gaining access to its compression technology.
Why Alphabet stock is a buy
While TurboQuant hasn't yet been deployed, it has the potential to once again grow the AI structural cost advantages that Alphabet has already established. In the coming years, AI progression is very likely going to come down to which companies can best drive down costs, and Alphabet is already at the forefront and looking to expand its lead in this area. That's why it's one of the best AI stocks to buy right now.
