Key Points
Alphabet designing its own chips helps reduce its reliance on Nvidia, which is known to charge premium prices.
Google Cloud is Alphabet's fastest-growing segment, but it still doesn't compare to Google Search's revenue.
Alphabet is doing a good job of seamlessly integrating its Gemini model into its ecosystem.
- 10 stocks we like better than Alphabet ›
Nvidia is often one of the first companies that come to mind when someone thinks of an artificial intelligence (AI) company. The once-mainly video game graphics company has become one of the most important AI companies in the world and is now the most valuable public company, with a market cap of over $5.4 trillion as of June 1.
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Even with Nvidia's success and growth opportunities, it's not the smartest AI stock to invest $500 in right now. That would be Google's parent company, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Its returns for the year are identical to Nvidia's (both up over 18%), but what sets it apart as an AI stock is its full-stack approach.
Image source: The Motley Fool.
Reducing its reliance on third-party chipmakers
Many working parts come together for AI to work as it does today. While some companies operate in one part of the AI ecosystem, Alphabet has its hands in three key parts: chipmaking, cloud, and its own AI model, Gemini.
Data centers (the physical backbone of AI) can't run without being powered by lots of advanced chips. Whether it's Nvidia's graphics processing units (GPUs) or AMD's accelerators, chips are to data centers what electricity is to a power grid.
Google has been designing its own chips -- called tensor processing units (TPUs) and central processing units (CPUs) -- that have helped it reduce its reliance on third-party chip designers like Nvidia. It still needs a company like Taiwan Semiconductor Manufacturing Company to manufacture the physical chips, but it's not at the full mercy of Nvidia's pricing power or overall supply shortages, unlike many other companies.
This saves Alphabet money and allows it to tailor its hardware-software collaborations and integrations much more effectively.
A cloud business worth being excited about
Google Cloud is one of the big-three cloud computing platforms, trailing behind Amazon Web Services (AWS) and Microsoft's Azure in market share. Although Google Cloud is firmly in third place size-wise (and likely will be for quite some time), overall demand for cloud services is growing so much that all three platforms are experiencing rapid growth.
In the first quarter (Q1) of 2026, Google Cloud revenue increased 63% year over year and crossed $20 billion for the first time. That's impressive but maybe not as impressive as its backlog nearly doubling to reach $467.6 billion, or the fact that its operating margins increased by 15.1 percentage points to 32.9%.
Ideally, Google Cloud would have the capacity to meet all growing demand, but that's not the case right now. It's a major reason the company is planning $180 billion to $190 billion in capital expenditures this year. It needs more data centers in order to expand capacity. And on June 1, Alphabet proposed an $80 billion equity capital raise to more aggressively build out its AI infrastructure.
Gemini is an added bonus
Alphabet's Gemini AI model is one of the most popular in the world, along with the likes of OpenAI's GPT and Anthropic's Claude. One thing Alphabet has that those other companies don't, however, is its vast -- and I do mean vast -- amounts of data from its family of platforms and apps.
Between Google Search, YouTube, Google Maps, and the like, Alphabet has a data advantage in training Gemini. Whether you consider it "better" than other models depends a lot on what you use AI for, but it has been seamlessly integrated across Alphabet's ecosystem. And if you're indifferent between models, Alphabet can offer benefits like cloud storage and deeper integration with Google tools that other companies can't.
Some companies need AI to be "the next big thing" in order to survive. Alphabet has the advantage that the technology is a plus for its current business, which is already a well-oiled machine.
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Stefon Walters has positions in Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. 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.
