If I Could Only Buy 1 Artificial Intelligence (AI) Stock Before the Market Crashes, It Would Be This One

If I Could Only Buy 1 Artificial Intelligence (AI) Stock Before the Market Crashes, It Would Be This One

Artificial intelligence (AI) has been one of the biggest drivers of the stock market's rally over the last few years. While this enthusiasm has propelled the S&P 500 to record highs, there's a growing concern that investors may be getting ahead of themselves.

The S&P 500 Shiller CAPE ratio, which measures stock valuations against 10 years of inflation-adjusted earnings, is hovering above 41. Readings this elevated are extremely rare, raising questions about whether the market is due for a correction. After several years of exceptional returns, investors should think about what stocks they want to own if sentiment suddenly changes.

Missed AI's "Act 1"? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

During downturns, I prefer companies with established competitive advantages, diversified revenue streams, and enough financial flexibility to keep investing while weaker competitors fall behind. This is why Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is near the top of my shopping list.

Alphabet's business is built to withstand uncertainty

One of Alphabet's biggest strengths is that so many of its products are embedded in everyday life. Think about how frequently people use Google Search, Gmail, YouTube, Google Maps, Android, and Chrome. Although the use of these services isn't a discretionary purchase in the traditional sense, they are integrated into how billions of people around the world communicate, navigate, work, and discover information.

The advantage of this model is that Alphabet can attract users through its ecosystem of free services and monetize people's activity through advertising. Since its products are interconnected, Alphabet can easily introduce new features and services to existing customers rather than constantly creating new products and marketing to different demographics.

Alphabet's reach extends far beyond consumers. Through Google Cloud, Alphabet provides computing infrastructure, cybersecurity, data analytics, and AI services to enterprise customers. This diversified business model comes in handy during economic downturns. Advertising budgets often decline when businesses become cautious, but enterprise technology budgets usually follow different priorities.

The most compelling thing about Alphabet is the company's ability to vertically integrate its various businesses. Within Google Cloud, the company offers its own custom silicon, called Tensor Processing Units (TPUs). It also operates data centers, builds AI models through Google DeepMind, and distributes AI-powered products through Search, Gemini, and Workspace.