Nvidia and Alphabet: Giants in the AI Era with Different Values

If one looks up the term "Artificial Intelligence" (AI), one might think they would find the Nvidia logo. Although this is, of course, meant humorously, the company has indeed established itself as the flagship of this revolutionary technology. Nvidia has delivered an impressive performance over the past five years. The company's stock has increased by 2,560%, meaning that an investment of $10,000 in September 2019 would be worth a remarkable $266,000 today. This growth has far outpaced the broader Nasdaq Composite Index. Crucial to this success is Nvidia’s role as a supplier of graphics cards, which are essential for many AI systems. Companies of all sizes are striving to optimize their operations and integrate AI, making Nvidia the main beneficiary of this development. According to Mizuho Securities, Nvidia commands a market share of 70% to 95% in chips that power AI models. The most recent financial figures reflect this growth: revenue rose 122% in the second quarter of fiscal year 2025 to $30 billion, compared to $13.5 billion in the same period of the previous year. The company boasts impressive margins: a gross margin of 75% and an operating margin of 62%. This has made Nvidia a company with a market capitalization of $2.7 trillion. However, Nvidia’s price-earnings ratio (P/E ratio) currently stands at 52, making it the second most expensive stock among the "Magnificent Seven" – not an especially attractive ratio for new investors. While Nvidia is in the spotlight, it may be worth taking a look at Alphabet. Alphabet has been utilizing machine learning and AI in its search engine since 2001 and integrates these technologies into numerous products and services such as Google Maps and Gmail. CEO Sundar Pichai positioned the company as "AI first" as early as 2016. Today, all Alphabet products with more than two billion monthly users are equipped with Gemini AI technology. Alphabet generates annual free cash flows of $54 billion and has a net cash balance of $87.5 billion. This affords the company significant financial resources to continue investing heavily in AI. Alphabet's stock has a relatively favorable P/E ratio of 23, making it appear to be a more attractive investment compared to Nvidia.