The Best Artificial Intelligence (AI) Stock to Buy With the Market At All-Time Highs

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2 days ago

Key Points
Alphabet stock is still trading at a cheap multiple.
It has many growth vectors to benefit from artificial intelligence.
Margin can help the company's profits explode in the next few years.
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The S&P 500 keeps soaring to new highs, making it feel impossible to find a cheap large-cap stock to buy today. This is especially true in technology and artificial intelligence (AI). Stocks such as Nvidia and Microsoft have price-to-earnings (P/E) ratios approaching 40 or higher, making them risky for investors. Growth expectations are high for many companies, which can make it increasingly difficult to buy stocks for your investment portfolio, especially if you care about value investing.
That isn't the case with every AI stock. Here's why Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is the one AI stock you can buy right now with stocks at all-time highs.
Alphabet's matrix of growth
Some pundits have deemed Alphabet -- parent company of Google -- an AI loser because of competition from ChatGPT. I think this underplays the big picture. Alphabet has perhaps the most to gain from AI through its various subsidiaries, while also employing the best data advantage of any big technology player because of all the user data from Google, YouTube, and other properties.
AI is not going to eliminate Google Search -- it will take it to the next level. AI overviews are already growing like a weed for Google Search results, while the Gemini chatbot is helping with advanced conversational queries. An explosion in new AI technologies will greatly expand the addressable market for Google and its related properties. That's why revenue is growing at a 10% annual rate for Google Services, even though it generated $77 billion in revenue just in the first quarter.
Another way Alphabet can benefit from AI demand is Google Cloud, which is growing revenue at an astonishing 28% year-over-year clip, and is close to surpassing $50 billion in annualized revenue (it may surpass that mark next quarter). AI workloads will need huge amounts of specialized computing power to function, which Google Cloud is set to provide.
Let's not forget self-driving start-up Waymo, which is taking over the streets of America's big cities, using Alphabet's infrastructure, engineering, and AI expertise.
It is an entire matrix of growth for Alphabet that can be supercharged by AI.
Profit margin expansion?
AI requires a lot of upfront spending on data centers and computer chips in order to train and operate. Alphabet is planning to spend $75 billion on capital expenditures in 2025, mostly related to AI. This will increase depreciation and require steady growth in order to get a return on this investment, which some investors are skeptical about. Google Cloud used to be unprofitable, but it posted an 18% operating margin last quarter, a number that can keep expanding as it reaches larger scale.
Due to these factors plus better hiring efficiency employed by Alphabet coming out of the pandemic, I think Alphabet's profit margins are set to keep inching higher over the next few years. Its operating margin recently hit a record of 33%. With huge operating leverage on its fixed-cost investments, I think this figure can grow to 40% over the long term, which is similar to Microsoft.
With revenue at $359 billion that could grow to $400 billion or even $500 billion within a decade, a 40% operating margin could help Alphabet grow its operating income to $200 billion within a few years. That would make it the most profitable company in the world.
Buybacks and a cheap stock
With all the earnings flowing to its balance sheet, Alphabet is returning capital to shareholders through buybacks and dividends. It pays a dividend yielding 0.42% that is set to grow steadily, while shares outstanding have fallen by 12% in the last 10 years.
Alphabet plans to keep repurchasing stock at these cheap prices. It has a P/E ratio of 21, which is the cheapest among the "Magnificent Seven" stocks. This is shocking to see, given how much Alphabet can benefit from AI and cloud computing growth.
Add everything up, and Alphabet looks like a fantastic stock to buy today, even with the market at all-time highs.
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*Stock Advisor returns as of July 21, 2025
Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, 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 Best Artificial Intelligence (AI) Stock to Buy With the Market At All-Time Highs was originally published by The Motley Fool