The "Great Rotation" out of growth and artificial intelligence (AI) stocks and into value stocks has proved to be short-lived, and the tech-heavy Nasdaq Composite index is once again leading the market's charge upward. There has been some nervousness around the conflict with Iran and AI infrastructure spending, but the technology looks like it is still in its early stages. AI models are only getting better, and agentic AI is still in its infancy.
Although the infrastructure hardware sellers are getting much of the buzz, I think two of the companies doing a lot of the spending are well positioned to be huge AI winners over the long haul. That's why I would be buying Alphabet (GOOGL +2.07%) (GOOG +2.06%) and Amazon (AMZN +1.93%) right now.
Alphabet: The ultimate AI play
Alphabet has the most complete AI stack of any company. This starts with its Tensor Processing Units (TPUs), which are custom chips it began developing more than a decade ago. It has optimized its entire hardware and software ecosystem around these application-specific integrated circuits (ASICs), and has continually improved upon them throughout the years. The chips are now in their seventh generation, and their eighth generation arrives later this year.
This has given the company a big cost advantage for both AI model training and running inference workloads. The company is also letting customers deploy TPUs within its cloud computing platform, Google Cloud, and is just starting to let certain big customers buy them for use in their own data centers.
NASDAQ: GOOGL
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At the same time, Alphabet has used its TPUs to create its world-class AI foundational model, Gemini, which has been gaining share as a stand-alone app. But more importantly, Alphabet is embedding its AI capabilities across its products to make them better and drive growth, including with its core Google Search business.
The company has a huge advantage in distribution and its ad network, so it has become a leader in the consumer space. And its recent acquisition of the cloud security provider Wiz also makes it a leader in AI data center cybersecurity.
Given Alphabet's built-in cost and ecosystem advantages, it is a top AI stock to own, both during this rally and for the long term.
Image source: Getty Images.
Amazon: Don't underestimate this cloud giant
As the largest cloud infrastructure provider in the world, Amazon has unmatched scale in the space. The company also has developed its own custom chips, which gives it a cost advantage as well.
Its AI accelerators are not as established as Alphabet's TPUs, but this is still a big business. The company built a huge data center using its Trainium chips dedicated to Anthropic that came online toward the end of last year, and management recently announced that its chips are a $20 billion run-rate business.
NASDAQ: AMZN
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Amazon also said that this would be about a $50 billion business when including the chips it is deploying for its internal use. While this isn't counted in revenue, the semiconductors still save the company money in capital expenditures and on inference costs.
It also has its own custom central processing units. Supply of such chips is expected to be one of the next big AI infrastructure bottlenecks, and with its Graviton chip, the company is very well positioned for agentic AI.
Amazon's cloud segment is its largest profit center, and it is starting to see its revenue growth accelerate, but its e-commerce business remains strong. The company is using its leadership in AI, automation, and robotics to increase efficiency and drive impressive operating leverage in e-commerce. This, in turn, is leading to strong profitability growth in the segment.
As the market leader in cloud computing and e-commerce, Amazon is a great stock to own as the market shifts back toward favoring growth stocks.
