Should You Forget Nvidia and Buy This Tech Stock Instead?

Everybody knows that Nvidia (NASDAQ: NVDA) is one of the most popular stocks on the market today. It's not only one of the most valuable stocks with a $3.24 trillion market cap on Jan. 13, but it's also very heavily traded. The daily dollar volume of Nvidia shares moving from one investor to another was about $28 billion in recent weeks. That's more than the total dollar-based trading of Apple, Microsoft, and Amazon.

So it's no surprise that a Motley Fool research report finds Nvidia stock in almost every hedge fund managed by a well-known billionaire. Analyzing 16 such funds, 10 of them ranked Nvidia among their 10 largest holdings.

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But Nvidia wasn't the most popular name in this report. Eleven of these hedge funds listed Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) as a top-10 holding, in a tie with Facebook and Instagram parent Meta Platforms.

Alphabet's two stock classes add up to a daily trading volume of $9.2 billion, far behind Nvidia's headline-inspiring ticker. At the same time, Alphabet's stock gained roughly 35% over the last year while Nvidia posted a 145% return.

I'm not saying you should forget Nvidia outright, but this might be a good time to lock in some of your profits in that stock and move the resulting cash over to Google's parent company. Here's why.

Alphabet's tempting qualities

Let's start with Alphabet's tempting qualities. This topic could fill volumes, but I'll keep it short and simple here:

• You want digital advertising? There may be many options, but none can challenge Google's massive market footprint. This business is not peanuts. It generated $258 billion of top-line revenues and $115 billion in operating profits over the last year. Nvidia's sales stopped at $113 billion over the same period.
• The company is incredibly flexible. Management renamed it from Google to Alphabet in order to make investors and potential customers more comfortable with products and services that might not be related to the core search-and-advertising business. Now, the company generates 13% of its quarterly sales from Google Cloud services. Another 11% comes from the YouTube video-sharing platform. Alphabet's smaller operations with big long-term potential include medical research, self-driving cars, and high-speed internet services.
• Alphabet was a leader in artifical intelligence (AI) before it was cool. The DeepMind subsidiary started in 2010, taking early steps toward creating general AI systems. Its AlphaZero chess engine raised eyebrows in 2017, learning the game by playing millions of games against itself and reaching its own conclusions in 24 hours. The resulting system was arguably the best chess computer at the time. The research that led to these headline-worthy highlights (and many more) never stopped. Google and Alphabet must have a plethora of AI systems on tap, and some could have game-changing consequences.
• The stock is worth $2.3 trillion today, but it still looks affordable. Alphabet's A shares trade at 25.3 times trailing earnings and 6.9 times sales. That's a bargain-basement valuation next to Nvidia's corresponding ratios of 52.5 and 28.8.

Why Alphabet is a better buy

Nvidia's stock will probably build shareholder value in the long run, even from this lofty pricing plateau. But the days of quick and easy gains are probably behind it. The AI boom started a golden age for Nvidia and its investors, but how long will it last and what happens next? I'm not a big fan of narrowly defined business plans like Nvidia's sharp AI focus.

On the other hand, Alphabet started out as a one-trick pony named Google but has moved on to wider vistas, exploring a plethora of promising business ideas. That's what I like to see in a portfolio aimed at the long term. And I can't complain about Alphabet's affordable share prices, either.

All told, Alphabet's stock is simply a much better buy than Nvidia's right now. I'm not saying you should forget all about Nvidia -- I just don't recommend buying more of these pricey shares in early 2025.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.