There's no doubt that the uncertainty around U.S. trade and tariffs is worrying everyone right now. People are thinking about and planning for a possible recessionary scenario this year. This unfavorable backdrop has taken the attention away from artificial intelligence (AI), the breakthrough technology that has been capturing headlines over the past couple of years.
The smartest investors are staying focused, though, with an eye toward the long term. Consequently, adding an AI stock to the portfolio might seem like a good idea, especially with the market taking a dip. If this describes how you feel, then consider buying Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), a dominant internet enterprise.
Strong momentum
During the three-month period that ended March 31, corresponding to Q1 2025, Alphabet reported better-than-expected financial results. Revenue jumped 12% to $90.2 billion. Profitability improved, with the operating margin expanding from 32% in Q1 2024 to 34% last quarter.
A softer macro environment could spell trouble, however. About three-fourths of Alphabet's revenue base is represented by digital advertising efforts. And this activity, while incredibly lucrative, is prone to cyclicality. If executives are worried about difficult times ahead, they won't hesitate to cut back on marketing spending. This could reduce demand for Alphabet, pressuring revenue.
AI powerhouse
It's not surprising that Alphabet is a leading AI stock that investors should consider. This business has dominated the technology and internet landscape for a long time. Naturally, it's in a very advantageous position to ride the AI wave. Alphabet says that it's "been developing AI for more than two decades," something probably no other company can claim.
And today, it's hard to overstate how much of an AI business this really is. "All 15 of our products with half a billion users now use Gemini models," CEO Sundar Pichai said on the Q1 2025 earnings call. In March, Alphabet introduced Gemini 2.5. "It's widely recognized as the best model in the industry," Pichai added.
The company is making major progress. For example, AI Overviews in Google Search has more than 1.5 billion monthly users. The leadership team also highlights a 26% growth in conversions per dollar spent for ad customers that use AI tools for Alphabet's Demand Gen campaigns.
The fact that Alphabet's products and services are widely used by so many people across the world on a daily basis means that it has the rare ability to test and iterate. New AI features can constantly be introduced for instant adoption. Then, things can be tweaked and improved to boost usage. It's essentially the same playbook that has made this one of the world's greatest businesses.
Google Cloud, which posted 28% and 142% year-over-year revenue and operating income growth, respectively, in Q1, is poised to be a big beneficiary of the AI trend. This segment offers customers an extensive suite of AI products and services that allow clients to build whatever they need for their own purposes.
Looking ahead, management is not taking their foot off the gas pedal. The business reiterated plans to spend $75 billion on capital expenditures in 2025. It has seemingly unlimited financial resources to keep making an aggressive push into AI. And Alphabet is undoubtedly one of the top destinations for AI talent.
Don't overpay
In the past decade, shares of Alphabet have climbed by 462%. And today, this company carries a monster $1.9 trillion market cap. It's understandable if investors think it's too late to buy the stock.
However, that's a flawed view. As of this writing, shares trade at a forward P/E ratio of just 16.8. For such a superior business that's already a leader in the AI space and in a wonderful position to keep the momentum going, the stock is attractively valued. Alphabet is a no-brainer buy.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
