Artificial intelligence (AI) investing continues to be at the forefront of most investors’ minds. There is a lot to come from this technology, and we’ve barely scratched the surface.
One AI stock that is fairly cheap right now is Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and it is one of my best stocks to buy right now. Even with what’s going on in DeepSeek’s R1 generative AI model, I still think Alphabet is an attractive purchase.
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Advertising is still the largest part of Alphabet’s business
Alphabet is Google’s parent company, so it doesn’t necessarily have to win the generative AI arms race. This is important, as Alphabet’s generative AI platform, Gemini, is normally listed near the top of the best generative AI models, although it isn’t in first place.
While Alphabet would love to have Gemini as the top generative AI platform, it doesn’t need it to be. Alphabet’s primary business is advertising, with 75% of its revenue coming from advertising sources in Q3. While Alphabet has spent time developing the Gemini model to be something that developers can build upon (which they have), the real strength of its model has been its integration with its various ad services.
With Gemini integrated into Google Ads, users can develop ad campaigns much faster that also adapt to individual consumers. This keeps Google at the top of the advertising game and ensures that clients will continue to come to them as a place to get a great return on advertising dollars spent.
Alphabet also has Google Cloud, its cloud computing division. Many non-AI workloads have been built on Google Cloud alongside AI workloads. Cloud computing will continue to be a huge movement, as companies need access to the computing power to build their AI models and workloads.
While clients may use Gemini or DeepSeek’s R1 as a base language to build their platforms, they still need the computing power that a cloud computing provider has to run them continuously. As a result, Alphabet’s cloud computing segment should still be primed for stronger growth.
So, even with the news of DeepSeek’s R1 model being released, Alphabet is still positioned strongly to benefit from the AI arms race. Fortunately for investors, it’s also on sale right now.
Alphabet’s stock doesn’t trade at lofty levels like its peers
Like some of its big tech peers, Alphabet never achieved a premium valuation. Right now, Alphabet’s stock trades for 25 times trailing earnings and 21 times forward earnings.
GOOGL PE Ratio data by YCharts
Compared to the S&P 500, which trades for 26 times trailing earnings and 22 times forward earnings, Alphabet trades at a slight discount. This is despite Alphabet having strong growth figures.
In Q3, Alphabet’s revenue rose 15% year over year, and earnings per share (EPS) jumped from $1.55 to $2.12. Alphabet reports Q4 earnings on Feb. 4, and there may be some scrutiny and discussion about AI spending (because DeepSeek reportedly trained its AI model for under $6 million), but if Alphabet takes cues from DeepSeek and makes its model cheaper to train, that will only boost its earnings over the long run.
Alphabet is still a top stock to buy, both for its AI platforms and its normal business. While the markets may be a bit bumpy right now, it’s an excellent time to take advantage of it and scoop up some shares at an even bigger discount.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
