Investors seeking exposure to the artificial intelligence (AI) boom may want to look beyond Nvidia, as its valuation has become a concern. Instead, consider Alphabet (GOOGL -1.53%) and Meta Platforms (META 2.46%), two companies uniquely positioned in the AI wars.
These internet giants own powerful platforms like Google Search, YouTube, Android, Google Cloud, Facebook, Instagram, and WhatsApp, with billions of users daily. They offer new AI features with instant adoption, receiving rapid feedback that informs product iterations. With vast data at their disposal, they’re well-equipped to train large language models.
Alphabet and Meta are in strong financial shape, boasting profitability and the ability to invest aggressively. Their planned capital expenditures are $75 billion for Alphabet and over $60 billion for Meta this year. These investments will bolster AI capabilities by expanding technical infrastructure.
Despite the hype around AI, investors may struggle to find value. However, Alphabet and Meta offer reasonable valuations. They trade at price-to-earnings (P/E) ratios of 22 and 29, respectively, making them cheaper than Nvidia’s 53.
Nvidia’s red flags include extreme customer concentration and a high valuation. The company relies heavily on top buyers like Alphabet and Meta for demand, which adds risk if their business were to decline. Furthermore, in an economic downturn, tech spending may decrease, leading to uncertainty around the return on investment.
Considering Nvidia’s concerns, it might be time to shift focus to Alphabet and Meta. These two companies offer a more stable entry point into the AI trend with reasonable valuations and a strong track record of profitability.
Source: https://www.fool.com/investing/2025/02/26/should-you-forget-nvidia-and-buy-2-artificial-inte