Artificial intelligence (AI) has captivated the tech world over the last year, with many companies pivoting their businesses toward the budding sector. According to Grand View Research, the AI market is expected to expand at a compound annual growth rate of 37% through 2030, which would see it hit a valuation nearing $2 trillion.

The generative technology can potentially boost a range of industries, from cloud computing to autonomous vehicles, e-commerce, productivity software, and much more. AI's growth potential suggests it's not too late to invest long-term in the industry and benefit from its future development.

As leading cloud companies, Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) are two attractive options. These tech giants are investing heavily in AI and could have much to offer investors in the coming years. So, let's take a closer look at both and determine which is the better option today.

Amazon

It's hard not to be bullish about Amazon after the last year. The company's business was hit hard by an economic downturn in 2022 that dragged its stock down 50% alongside significant profit losses. However, Amazon has since pulled off an impressive turnaround that has showcased its reliability over the long term.

Shares in Amazon have climbed 46% in the last 12 months. The retail giant has rallied investors with solid growth in its e-commerce segments and an expanding role in AI. In its most recent period (the first quarter of 2024), Amazon's revenue increased by 13% year over year. The company delivered a 12% rise in sales in its North American division and a 10% increase in its international segment.

However, the largest increase came from its cloud platform, Amazon Web Services (AWS). It posted revenue gains of 17% year over year, with operating income soaring 84%.

AWS is easily Amazon's biggest growth driver and grants the company a powerful position in AI. Over the last year, AWS has gradually expanded its AI cloud services and announced a venture into chip design. Meanwhile, recent growth indicates the company's heavy investment in AI is beginning to pay off.

In addition to cloud computing, Amazon is improving its e-commerce business with AI. The tech giant has introduced a new AI-powered shopping assistant called Rufus, alongside improvements to shipping logistics, tracking shopping trends, and product recommendations.

Alphabet

Alphabet's AI efforts have lagged slightly behind rivals like Amazon and Microsoft, with the third-largest cloud market share behind both companies. However, Alphabet remains a compelling way to invest in AI, thanks to its diverse product range and massive user base.

The tech giant may be best known for its search engine, Google, but Alphabet is so much more. In fact, the company's primary business is digital advertising, which makes up more than 80% of its revenue. In-house brands like Android, YouTube, Chrome, and the many products under Google attract billions of users and offer almost endless advertising opportunities.

Meanwhile, these brands could similarly help attract users to Alphabet's AI products.  Alphabet is sinking billions into AI, unveiling its most advanced AI model, Gemini, earlier this year. And on May 30, the company announced a $2 billion plan to build a new data center in Malaysia, equipped with a Google Cloud hub.

It will take time for Alphabet to realize its full potential in AI, but its range of potent brands indicates a solid outlook in the industry. Improved technology could allow the company to monetize its AI efforts by making Google's experience closer to OpenAI's ChatGPT, adding generative features to Android, expanding Google Cloud's AI tools, improving video recommendations on YouTube, and offering more efficient advertising.

Alphabet is on a promising growth path in AI that might be too good to pass up.

Is Amazon or Alphabet the better AI stock?

Alphabet and Amazon are behemoths in tech, evident by their positions as the world's fourth- and fifth-most-valuable companies by market capitalization. Their products are used by people and businesses worldwide, suggesting vast potential in AI.

Since 2019, Alphabet and Amazon have delivered stock growth of 176% and 184%, respectively, illustrating their reliability as long-term holds. With such comparable businesses, the best way to determine the better stock could lie in their valuations.

This chart shows that Alphabet has a significantly lower forward price-to-earnings ratio and price-to-free cash flow than Amazon, suggesting the Google company is trading at a far better value.

In addition to a range of potent brands and a vast user base, Alphabet is worth investing in over Amazon right now. However, it's still a good idea to keep Amazon on your radar and potentially buy when its shares are trading at a more attractive price point.

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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. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Better Artificial Intelligence Stock: Amazon vs. Alphabet was originally published by The Motley Fool