Key Points
Amazon is a leader in cloud computing and e-commerce.
Alphabet is transforming search with AI and has an attractive cloud business and emerging bets in robotaxis and quantum computing.
Both stocks trade at attractive valuations.
If you're looking to put a big chunk of money to work in the market now -- say $50,000 -- you're going to want to invest in market leaders with strong potential upside that are still trading at reasonable valuations.
Let's look at two great stocks that fit this description.
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Amazon
Amazon (NASDAQ: AMZN) share prices have lagged in the past few years, but that could be about to change. After years of heavy investment in logistics and automation, the company is now starting to see significant operating leverage in its e-commerce business. That could be seen last quarter in its North America segment, where its operating income surged 47% on just an 11% increase in revenue.
Much of this can be attributed to the company's expanding use of artificial intelligence (AI) and robotics. It now has more than a million robots in its fulfillment centers, which are all coordinated to run smoothly by its DeepFleet AI model. These robots can do more than just lift packages, with some able to detect damaged goods or even repair themselves. Management is also using AI to determine which fulfillment centers should stock specific items and how best to route deliveries.
Another contributor to Amazon's improving operating leverage is its digital advertising business, which carries much higher gross margins than the rest of its e-commerce operations. The company has been using AI to improve its ad targeting and performance in its sponsored ad business, which is attracting advertisers and driving growth. This has been one of its fastest-growing businesses, with revenue jumping 23% last quarter to $15.7 billion.
Amazon's largest segment by profitability is its cloud computing unit, Amazon Web Services (AWS). Its revenue climbed 17.5% last quarter to nearly $31 billion, with operating income topping $10 billion. AWS benefits from customers who use its services and infrastructure to build out their own AI models and apps. It also has its custom AI chips, which can help reduce costs, and is invested in the AI model company Anthropic.
The company's emerging bets include its biggest swing, Project Kuiper, a satellite broadband network designed to provide global, low-latency internet service. It competes with Elon Musk's Starlink and could be a big growth driver.
At a forward price-to-earnings ratio (P/E) of 28.5 times next year's earnings estimates, Amazon is at one of its lowest valuations in years, and below traditional retailers like Walmart and Costco, making the stock an attractive long-term buy at current levels.
Alphabet
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is another market leader with good upside potential that trades at an attractive valuation. Search remains its core business, but it's evolving quickly due to AI by using the technology to transform the entire search experience.
Alphabet has introduced AI features on smartphones -- like Circle to Search, and Lens -- that take search well beyond typing text into a box. Users can now take a photo with a smartphone or circle something in an image to search for items. This is often used by people looking to buy a similar item, which feeds right into the company's huge ad network.
At the same time, it's keeping users more engaged through its AI Overviews and new AI Mode, which blend traditional search results with chatbot-type answers. These innovations are leading to more queries and more ad revenue.
YouTube, meanwhile, continues to be one of the world's premier social media and entertainment platforms. The company is leaning into more short-form videos to compete with TikTok and help drive growth. Its AI video creation tools, such as Veo 3, have also been trained on YouTube videos, showing the symbiotic nature of its ecosystem.
Google Cloud, though, is now its biggest driver, with revenue for the segment surging 32% last quarter to $13.6 billion, while operating income more than doubled. It's only the No. 3 player by market share, but Google Cloud arguably has the most complete tech stack of any cloud provider. This includes a leading foundational large language model (LLM) in Gemini, top-notch AI chips in its tensor processing units (TPUs), and a strong software offering led by Vertex AI. This vertical integration gives it a cost advantage that should help it gain market share.
Alphabet also has promising emerging bets with its Waymo robotaxi business and in quantum computing, both of which could grow into huge businesses in the years ahead.
Even with all this, it is one of the cheap megacap AI stocks, trading at less than 23.5 times 2026 analyst consensus earnings estimates. That's why you can bet big on it over the long term.
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Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.
