Key Points
Alphabet's early investments in SpaceX and Anthropic have grown enormously in value.
Its own AI investments are thriving.
Several big-name companies are still privately held, meaning that retail investors can't put their money into them directly. The biggest, which is planning on going public in the near future, is SpaceX. Based on what we know about its initial public offering (IPO) plans, its market cap is estimated to be more than $1 trillion, so its early investors are poised to profit handsomely from their stakes.
Another popular market segment is generative artificial intelligence (AI). Companies like OpenAI and Anthropic are generating a ton of buzz, but small investors can't invest in them, either. However, there's a way to gain some exposure to both SpaceX and Anthropic through a single investment right now.
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How? By investing in Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL).
Image source: Getty Images.
Alphabet has a large venture capital fund
Alphabet was a fairly early investor in both SpaceX and Anthropic. Although we won't be able to calculate the exact values of Alphabet's stakes in them until they IPO, it's estimated that Alphabet owns about 6% of SpaceX and about 14% of Anthropic. Depending on what valuation these companies go public at, the combined total could add up to several hundred billion dollars. That's much greater than the sums it paid for those stakes. These two are Alphabet's most profitable external investments, but Alphabet also owns Waymo, its self-driving cab service.
While most investors focus on how Alphabet's business is valued, the reality is that they tend to forget about its significant side bets and how much money it could make if it liquidated those investments. Doing that would also open up the avenue to other investments, such as its own AI computing capacity. And given how much it's laying out on data centers, this could be a good time for the company to have a massive influx of cash.
Alphabet's AI strategy is working out
Alphabet is directly competing in the AI arms race with its own model, Gemini. It is also hosting workloads for several competitors via its cloud computing platform, Google Cloud. While this may seem like a conflict of interest, the reality is Alphabet is happy to make money however it can from the AI build-out. If it can ensure that it or one of its major clients is a major winner, the massive cloud infrastructure it's putting up will pay off.
One of Google Cloud's big advantages is that it can offer access to the custom AI chips that Alphabet designed in partnership with Broadcom(NASDAQ: AVGO). Its Tensor Processing Units have become a viable alternative to GPUs from Nvidia(NASDAQ: NVDA), and offer a more cost-effective computing solution as long as the workloads are properly configured. This is driving substantial growth: Google Cloud's revenue rose 48% year over year during Q4. This will be a segment to watch, as accelerating revenue will indicate the broad health of AI spending.
GOOG Capital Expenditures (TTM) data by YCharts.
In its bid to continue growing, Alphabet is investing a ton in new data center computing capacity, which is far from cheap. However, the payoff on these investments could be massive, which is why Alphabet is choosing to spend so much. If it were to decide to sell its whole SpaceX and Anthropic stakes (which I doubt it would do), the cash it would free up would be enough to fund over a year's worth of build-outs. Time will tell what Alphabet decides to do with its investments, but I think it will likely sell some shares.
Overall, Alphabet is still one of the best ways to invest in AI. It has a rock-solid base business, a booming cloud computing segment, and several other bets that can pay off even if some of its AI endeavors fail. It's a no-brainer pick in one of the more difficult sectors of the market, and I think it will continue to crush the market over the next decade as it moves into its role as an AI leader and facilitator.
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Keithen Drury has positions in Alphabet, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Nvidia. The Motley Fool has a disclosure policy.
