The stock market is witnessing a technological arms race playing out in real time. Companies are racing to build the data centers and other infrastructure to support artificial intelligence (AI), which experts believe could create trillions of dollars in economic value over the coming decades.
Inside these data centers are massive clusters of chips, which work together to train and operate AI models. The AI chip conversation begins with Nvidia (NVDA 3.78%), the company that has dominated this market from the jump.
However, tech giant Alphabet (GOOGL 3.21%)(GOOG 3.14%) has emerged as a potential competitor after successfully training its AI models with custom-built TPU chips it designed in-house.
Which AI chip stock is the better buy heading into 2026?
Image source: Nvidia.
Nvidia's AI dominance creates a high ceiling, but a lower floor
Thus far, developing AI has required massive quantities of chips. Nvidia's leadership in the AI chip market has translated to explosive revenue and profit growth for the company since early 2023. Some experts believe Nvidia's market share in the data center GPU chip space is as high as 92%.
As long as hyperscalers continue to build out this infrastructure, it's hard to see Nvidia's business slowing down anytime soon. In fact, Nvidia announced that it has booked $500 billion in orders for its Blackwell chips and their looming successor, Rubin, through the end of next year, with $150 billion of that already delivered.
NASDAQ: NVDA
Key Data Points
This data center boom has been highly lucrative. Nvidia now has deep pockets to develop and prepare for emerging AI opportunities outside of data centers, such as autonomous vehicles and humanoid robotics. That said, data center chip sales have become nearly the entirety of Nvidia's business. If data center investments dry up, Nvidia would struggle to fill those holes, and the stock would likely collapse.
Alphabet's AI ecosystem makes it the safer bet
For as much money pouring into AI data centers as there is, the group of companies cutting the checks, the AI hyperscalers, is relatively small. Among them is Google's parent company, Alphabet. Rather than relying on Nvidia's chips to power its AI models, Alphabet has worked diligently to develop its own custom-built tensor processing units, or TPUs, designed specifically for Google Cloud's machine learning workloads.
Alphabet successfully trained its newest Gemini model on its TPUs. It went so well that the company is considering selling its TPUs to other AI hyperscalers, such as Meta Platforms. Alphabet probably won't challenge Nvidia's market leadership, but the TPU represents additional upside to Alphabet's complete AI ecosystem. It's icing on an already delicious cake.
NASDAQ: GOOGL
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The stock already has a high floor due to its lucrative advertising and cloud computing business segments. Even if Alphabet never sells its TPUs to another company, they still provide a crucial cost benefit, saving Alphabet from spending billions of dollars on third-party chips. At this point, it appears that Alphabet has a significantly higher floor than Nvidia.
The winner? It depends
Does that make Alphabet the better buy? Well, it sort of depends on the style of investor you are. If you want maximum upside, it's hard to beat Nvidia, which has proven to possess the foresight needed to dominate the AI opportunity from the beginning. Even if other companies begin encroaching on the data center market, Nvidia will likely remain a key player in the AI field, including future applications.
However, if you're looking for a business that is a bit more diversified and stable, Alphabet may be a better fit for you. The company has multiple established business units and still offers exposure to new industries, like autonomous driving and quantum computing, through its smaller divisions.
The good news? Both stocks trade at attractive valuations, based on the market's expectations for their future earnings growth.
NVDA PE Ratio data by YCharts
A higher anticipated growth rate accompanies Nvidia's higher price-to-earnings ratio, though things can change quickly if the AI investment cycle ends prematurely.
Ultimately, it's hard to go wrong with either company as a buy-and-hold AI investment for 2026 and beyond.
