Better AI Stock: Amazon vs. Alphabet


These companies are crushing it in AI, as proven by their stellar quarterly earnings.

As some of the world’s most valuable companies, Amazon (AMZN 0.12%) and Alphabet (GOOGL 1.50%) (GOOG 1.62%) have long histories of providing investors with significant and consistent gains. Their shares are up 1,000% and 516% respectively over the past decade — and the companies still have promising prospects as they expand their reach.

The shares look like particularly attractive options for anyone aiming to invest in artificial intelligence (AI). Demand for AI services has skyrocketed over the last year, with Amazon and Alphabet well-equipped to meet demand with their respective cloud platforms. These tech giants are investing heavily in the budding AI market, and could see significant gains as the sector develops.

So let’s compare these companies’ businesses and determine whether Amazon or Alphabet is the better AI stock right now.

Amazon

Amazon’s stock price has popped 4% since April 30, when the company posted its earnings for the first quarter of 2024. During the period, revenue increased by 13% year over year to $43 billion, outperforming analysts’ expectations by $750 million. Meanwhile, earnings per share estimates came in at $0.98 against forecasts of $0.83.

The promising results come after a range of cost-cutting measures and heavy investment in AI, which has put the company on a promising growth trajectory. Recent moves are paying off for the company, with Q1 2024 operating income soaring 221% to just under $15 billion.

Much of Amazon’s profit growth is owed to its cloud platform, Amazon Web Services (AWS), which has added several new AI tools since last year. Companies are increasingly turning to cloud services to integrate AI into their businesses. Meanwhile, AWS is the world’s biggest cloud platform, accounting for 31% of the market.

In addition to cloud computing, Amazon has multiple ways to boost its business with AI. By improving its AI technology, the company can more accurately follow shopping trends and recommend products on its retail site, offer more efficient advertising on Prime Video, improve shipping logistics, and more.

Consequently, it might be worth buying Amazon’s stock while it is still at the beginning of its journey into AI.

Alphabet

Like Amazon, Alphabet has a potent position in the tech sector that will likely strengthen further as it continues to expand its AI capabilities.

The Google parent’s shares have risen 6% just since April 25, rallying investors with promising Q1 2024 earnings. The quarter saw Alphabet’s revenue rise 15% year over year to $81 billion, outperforming Wall Street’s expectations by $2 billion.

Over the past year, investors have grown concerned that Alphabet has fallen behind rivals like Amazon and Microsoft in AI. However, its latest quarterly results seemed to temper those fears, as revenue from its AI-centered Google Cloud segment spiked 28% year over year. Meanwhile, its advertising sales rose 14%.

The stellar growth proved that Alphabet’s venture into AI is paying off as it attracts new cloud clients and optimizes its digital advertising business. Alongside various budget cuts, Alphabet will likely continue to see consistent earnings and stock price gains in the coming years.

Is Amazon or Alphabet the better AI stock right now?

Amazon and Alphabet seem to be at the top of their games after recent earnings releases, with both company’s results proving that AI is a worthy venture. So the question is, which company’s stock is more likely to deliver bigger gains over the long term and perhaps see a bigger return from AI?

With the AI industry still in its infancy, it’s impossible to know the answers to these questions. In all likelihood, the best application for AI hasn’t even been thought of yet, and it’s impossible to know which company will profit most from the industry. As a result, it could be best to go with the company that currently has a stronger position in the sector and has gotten a better start, as market dominance is often challenging to take down once it is achieved.

And with that, Amazon looks like the better and more reliable AI stock. The company’s leading cloud market share has given it an advantage in AI. AWS has an impressive clientele, including top companies like Netflix, Sony, and Meta Platforms, and has made Amazon the go-to for AI cloud services.

Additionally, Amazon’s price-to-sales ratio of 3 — compared to Alphabet’s 6 — potentially makes Amazon’s shares a better value. Amazon’s stock is a screaming buy and a better option over Alphabet right now.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Netflix. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.



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