There's no denying that Nvidia (NASDAQ: NVDA) is the poster child of the artificial intelligence (AI) craze. The semiconductor business elevated to new heights thanks to sizable investments from multiple tech giants looking to build out their network infrastructure and processing capabilities, leading to monster gains for the company and its stock.
In the past five years, shares of Nvidia have gone bonkers, skyrocketing 2,370% (as of Nov. 27). The company has been jostling with Apple for the title of the world's biggest market cap.
But that huge run-up means it will be much harder to replicate the growth going forward. After an unprecedented run, should new investors considering Nvidia stock perhaps forget it and instead buy two other top AI stocks right now?
Powering AI infrastructure
Nvidia made a name for itself selling the graphics processing units (GPUs) that power vast computing systems used to help train AI models. The business has a ridiculous 88% market share in this sector. And the race among other companies to invest aggressively behind this technological trend resulted in strong demand for Nvidia products and services.
Last quarter (the third in its 2025 fiscal year, ended Oct. 27), it reported revenue of $35.1 billion, a figure that was up 94% year over year. Nvidia's profits are maybe even more impressive. The business posted a stellar operating margin of 62%, helping net income surge 109% compared to the same period of fiscal 2024.
The market's love affair with Nvidia has led to tremendous share gains. And this has resulted in a steep valuation. The stock trades for a price-to-earnings ratio (P/E) of 52.6, a 58% premium to the Nasdaq-100 index.
Some might argue that the valuation is reasonable. But investors need to consider Nvidia's competitive threats, namely that some of its biggest customers, like Microsoft and Amazon, among others, are working on developing their own AI chips. This introduces a risk that Nvidia will see demand, and its growth, start to diminish as we look ahead.
Dominant internet businesses
Nvidia is deservedly getting a lot of love these days, as its stock powers higher with strong revenue and earnings growth. But investors who might have missed the rally shouldn't get distracted from businesses that are already leaders in the AI race. I'm talking about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META), two of the most dominant internet companies on the face of the planet.
The advantage these two companies possess is that they already have massive user bases. Alphabet says that it has 15 different products and services that serve at least a half-billion people each. And Meta's family of social media apps collectively counts 3.29 billion daily active users. There might be no businesses that have this type of broad reach to immediately introduce AI features to.
Alphabet has been making AI investments for decades, but it increased its focus in this area around the time CEO Sundar Pichai took over about a decade ago. Not only does its Gemini large language model (LLM) power all of its AI offerings, but AI also permeates a lot of what Google Cloud does, resulting in strong customer growth.
Meta, on the other hand, has a Meta AI assistant targeted to users seeking to find information or generate images. And it already has over 1 million advertising customers using its generative AI tools to more effectively target their ads to the right users.
Both of these businesses possess vast financial resources to continue pushing forward. Not only do they generate copious amounts of free cash flow, but they also have pristine balance sheets. It makes sense that the leadership of these companies isn't holding back when it comes to plowing capital into AI-related investments.
If you aren't yet convinced about buying these two companies, then consider their valuations. As of this writing, Alphabet and Meta trade for P/E multiples of 22.4 and 26.8, respectively, far lower than Nvidia's. This makes them both top AI stocks to consider buying instead of going with Nvidia.
Should you invest $1,000 in Alphabet right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. 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. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
