alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is a potentially big player in the artificial intelligence (AI) market. The company is working on developing its own chatbot, Gemini, while also trying to enhance its existing products and services with AI capabilities.

But there are risks too. The biggest risk is that chatbots could reduce traffic searching for answers to queries on Google. After losing a major antitrust case related to Google Search, there is also the risk that regulators could decide to split Alphabet’s business or at least change how it does business. Because of its dependence on the advertising market, it could be very volatile in the event of a recession or increased competition.

In the past, I have been more optimistic about Alphabet’s growth prospects in the AI ​​space, but given these risks, I think there is a much better option for AI investors today: Advanced micro devices (NASDAQ:AMD)better known as simply AMD.

AMD’s business is less complex and may have better growth prospects

Many companies are currently investing feverishly in AI. From upgrading their IT infrastructure to buying chips, AI spending is increasing rapidly. Even Alphabet’s CEO Sundar Pichai recently acknowledged that the company might be investing too aggressively in AI, stating, “As we go through a curve like this, the risk of underinvestment for us here is dramatically greater than the risk of overinvestment.”

Alphabet could benefit from spending on AI in the future, but today its revenue comes primarily from ads. In the most recent quarter, which ended June 30, advertising revenue was $64.6 billion, up 11% year over year, and accounted for 76% of the company’s total revenue ($84.7 billion). That ad revenue comes primarily from YouTube and Google Search. However, AI chatbots could simplify searches for humans, potentially giving users fewer reasons to have to search on Google or YouTube.

AMD, meanwhile, has a more direct path to AI-related growth. The company expects to generate $4 billion in revenue from AI chips this year and recently raised its forecast by $500 million. Its chips could be in high demand as tech companies look for cheaper alternatives NVIDIAWhile AMD is a little late to the game, it plans to launch new AI chips in the next few years, including the MI350 in 2025 and the MI400 the following year.

The company’s growth rate hasn’t been too exciting. In the first six months of 2024, net revenue grew by just 6%, totaling $11.3 billion. However, the company expects revenue growth of 16% for the current quarter. CEO Lisa Su is optimistic about further AI-powered growth: “Our AI business has continued to accelerate and we are well positioned to deliver strong revenue growth in the second half of the year, led by demand for Instinct, EPYC and Ryzen processors.”

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As demand for AI chips remains strong, AMD could be in an excellent position to capitalize on these opportunities.

These companies could go in very different directions

Alphabet is doing well right now and is growing at a more impressive rate than AMD. But it’s questionable how long that will last. Not only is AMD’s business in the midst of an upswing, but Alphabet’s growth prospects could take a hit, especially if regulators break up the company.

The company’s growth rate could also slow if the ad market slows (due to a recession) or advertisers simply have more options. Social media site RedditFor example, could pose a significant threat in the not-too-distant future as the company expands its advertising business and enables advertisers to target users based on topics and interests rather than data. It is a potentially underestimated risk that exacerbates Alphabet’s presence and dependence on the ad market.

If you’re optimistic about AI, choose AMD over Alphabet

AMD is a better AI stock. The company is more likely to benefit directly from a rise in AI-related spending on chips that can help companies develop next-generation models and technologies. While the company’s growth rate hasn’t been too impressive recently, that could change quickly if the company launches new AI chips.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Jagielski does not own any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool has a disclosure policy.

Forget Alphabet: This Artificial Intelligence Stock I’d Buy Now was originally published by The Motley Fool