The artificial intelligence (AI) boom has taken the stock market by storm. The S&P 500 (^GSPC 0.55%) has advanced 55% in the last two years, and AI promises to drive more upside in the coming years as it boosts productivity and efficiency across industries.
Experts have compared AI to transformative events like the creation of the microprocessor, the personal computer, and the internet. Technological shifts of that magnitude come along maybe once in a decade, and investors that want to benefit as the AI boom unfolds should be buying stocks today.
Wall Street is currently fixated on AI agents, which differ slightly from traditional AI copilots. The agentic AI market is projected to increase at 45% annually through 2030, according to Grand View Research. Alphabet (GOOGL 2.65%) (GOOG 2.50%) is well positioned to capitalize on that spending, and the stock price is quite attractive.
Here's why Alphabet is my pick for the best AI stock to buy right now.
AI agents will augment human workforces in the future
The precise definition of artificial intelligence (AI) agent varies depending on the source, and often overlaps with the description of traditional AI copilots. But the basic difference is this: Traditional AI copilots can do simple things like summarize service issues and suggest solutions, whereas AI agents can handle more complex tasks like fixing customer service issues without assistance.
Experts envision a future where most enterprises augment human employees with teams of AI agents, which will essentially function as digital workers assigned to specific tasks. Nvidia CEO Jensen Huang in a recent interview said his company may someday employ 50,000 people, but it will have 100 million AI agents working under those employees.
Image source: Getty Images.
Alphabet is a recognized technology leader in AI cloud services
Alphabet-subsidiary Google is a long-standing leader in AI research, and the company is using that expertise to create new monetization opportunities across its advertising and cloud businesses. For instance, generative AI overviews in Google Search are increasing usage and satisfaction, which further cements its leadership in search advertising.
However, Google's largest and most compelling opportunity lies in cloud computing. In the past year, Forrester Research has recognized the company as leader in AI infrastructure solutions, machine learnings platforms, and foundational large language models. In one report, analyst Mike Gualtieri commented, "Google is the best positioned hyperscaler for AI. Google has enough differentiation in AI from other hyperscalers that enterprises may decide to migrate from their existing hyperscaler to Google."
Google is currently the third largest public cloud in terms of revenue. The company accounted for 13% of cloud infrastructure and platform services spending in the third quarter, while Amazon and Microsoft accounted for 31% and 20%, respectively. But Google gained a percentage point of market share during the last year as its AI business expanded. Nearly 90% of generative AI unicorns are Google Cloud customers.
The company could continue to gain market share in cloud services as enterprises lean into agentic AI. Google earlier this year added agent-building capabilities to Vertex AI, a platform that lets developers train and fine-tune machine learning models (including Google's Gemini) and deploy them in AI applications. Vertex AI Agent Builder positions Google to be a major player as agentic AI spending grows into a $50 billion market by 2030.
Here are example use cases: ADT is developing AI agents to help customers select and set up home security systems. InterContinental Hotels Group is creating AI agents that assist travelers in planning vacations. And Mayo Clinic researchers are building AI agents that help healthcare professionals search clinical data.
Alphabet stock trades at a reasonable valuation
The International Data Corporation estimates spending on public cloud services will increase at 19% annually through 2028. But spending on artificial intelligence platforms like Google's Vertex AI is projected to increase at 51% annually during that period, driven in part by demand for agentic AI solutions.
Wall Street estimates Alphabet's earnings will increase at 16% annually in the next three years, but its bottom line may grow faster if the company keeps gaining share in cloud infrastructure and platform services, which seems plausible given its position as a recognized leader across several AI product categories.
However, even without upward revisions to earnings estimates, the current valuation of 25 times earnings looks quite reasonable. That's why Alphabet is currently my top AI stock, and why I think long-term investors should consider buying a small position today.
