Nvidia vs. Alphabet: Which Artificial Intelligence (AI) Stock Should You Buy After the Emergence of China's DeepSeek?

Analysts at BMO said while there are still a lot of questions, the current information available suggests that DeepSeek likely used servers with 50% to 75% less power intensity than servers that use Nvidia’s most recent GPUs. No analysts have outright said they were putting a sell rating on Nvidia stock yet, but the backdrop remains uncertain.

Alphabet faces a similar threat from DeepSeek. However, its stock didn’t sell off as hard, largely because it’s in a different place than Nvidia. For one thing, its stock didn’t perform nearly as well in 2024.

Alphabet has been dealing with its own issues, notably including a Department of Justice lawsuit that accused the company of using monopolistic practices to dominate the digital ad space and employing pricing methods that essentially made it the only shop in town. A federal judge agreed with Justice. The department then submitted a filing that some view as asking the judge to force Alphabet to break itself up and sell its Chrome browser. While many suspect a breakup plan won’t actually come to fruition, it would adversely impact the company if it did.

Additionally, while investors have priced more and more potential into Nvidia’s stock, Alphabet’s stock price may not fully reflect its AI strengths and opportunities. The company actually builds AI data center chips of its own, for example, and its DeepMind unit is similar to OpenAI. Yet according to D.A. Davidson analyst Gil Luria, these divisions — potentially worth multiple hundreds of billions of dollars — are not adequately priced into the stock. Luria still has a hold rating on Alphabet, but would become more optimistic about it if management makes more of an effort to unlock value.

As things stand, I don’t foresee impending doom for Nvidia. I think the magnitude of the DeepSeek-driven sell-off also had to do with the fact that Nvidia had been trading at an elevated valuation, making it more vulnerable to a correction. Even after the sell-off, the stock still trades at about 41 times forward earnings, which may end up looking like a discount someday. For now, though, I’d recommend buying Alphabet over the AI chip king. Alphabet is still dealing with the overhang of the Justice Department lawsuit, but I don’t expect it to have to sell its Chrome browser. Furthermore, the stock only trades at about 22 times forward earnings, and that price may not be giving the company any credit for its AI businesses.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.

Nvidia vs. Alphabet: Which Artificial Intelligence (AI) Stock Should You Buy After the Emergence of China’s DeepSeek? was originally published by The Motley Fool