The market has been overexaggerating in 2024. Technology stocks, especially. After posting a total return of 55% in 2023, the Nasdaq-100 The index has followed with a total return of 27.5% through 2024 (as of this writing). These are two of the strongest years in the index’s history. Counterintuitively, momentum in the Nasdaq tends to generate more momentum. Historically, whenever the Nasdaq produces a 30% return in one year, gains of at least 19% follow the following year, indicating that the momentum in tech stocks has a good chance of continuing into 2025.

In 2023 and 2024, the leader of the technology party was Nvidia. In 2025, I think alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) will take the lead as a leader in artificial intelligence (AI). Here’s why investors should bet on Alphabet stock in 2025 and hold on to long-term gains.

When OpenAI’s ChatGPT went viral in late 2022, Alphabet investors got nervous. The owner of Google, YouTube and research lab DeepMind was supposed to be the leader in AI research. In fact, the company had invented the transformer model that led to the advancement of ChatGPT to OpenAI, and yet the company failed to capitalize on the situation.

In early 2023, Alphabet’s stock fell sharply with ChatGPT becoming popular. when Microsoft It partnered with OpenAI and CEO Satya Nadella said he wanted to “make Google dance,” investors became even more nervous. Was Google Search’s monopoly about to be broken?

Two years later, it’s clear that Alphabet has risen to the challenge. It has copied all of OpenAI’s products, innovated Google Search to incorporate more AI tools into the product, and maintained its search engine market share. Now, it’s starting to extend its leadership in commercializing AI. Recent announcements include an AI video generator, quantum computing chips, and the expansion of Waymo’s self-driving car unit into new cities, just to name a few updates. Concerns about Alphabet’s lag in AI innovation should be over. This company is once again at the forefront of the sector.

Extending its leadership in AI will help Alphabet grow its business. More search queries will generate more revenue in Google Search, which is about 74% of the company’s total revenue. The most important will be the cloud infrastructure business called Google Cloud. This segment reached $11.35 billion in revenue last quarter, and profit margins increased.

Alphabet’s AI expertise allows it to sell these computing, storage and software tools to third-party companies. As AI spending grows, a large portion will go to Google Cloud data centers. It’s only a small part of the business right now, but I think there’s a clear path to $100 billion in Google Cloud revenue in a few years. Assuming the company can achieve or exceed 25% profit margins, which competitor Amazon Web services easily top that, accounting for $25 billion in annual revenue for this fast-growing division. I would expect these financial metrics to hit these milestones by the end of the decade, if not sooner.

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Despite Alphabet’s stock recovery, it still looks like an attractive buy at current valuation levels. The stock has a closing price to profit (P/E) ratio of 25, which is far below S&P 500 average of 30. Alphabet’s revenue is growing 15% year over year and should continue to grow at a double-digit rate if the company can maintain and expand its leadership in AI.

Management is simultaneously investing in AI and returning more cash to shareholders through share buybacks and dividends. Add them to the mix, and Alphabet’s shareholder returns will be even better in 2025 and beyond.

In short, Alphabet trades at a discounted P/E to the broader market and should continue to grow revenue at a double-digit rate for years to come. In addition, it has a management team that returns capital to shareholders. That’s the holy trinity of outperformance in the stock market, and it’s why Alphabet is a good bet for investors to buy and hold in 2025.

Ever feel like you’ve missed the boat on buying the hottest stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock. recommendation for companies that believe they are about to exit. If you’re worried that you’ve already missed your investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled in 2009, you would have $349,279!*

• Apple: if you invested $1,000 when we doubled in 2008, you would have $48,196!*

• Netflix: if you invested $1,000 when we doubled in 2004, you would have $490,243!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another opportunity like this anytime soon.

See 3 “Double Down” actions »

* Stock Advisor returns from December 23, 2024

John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft and Nvidia. 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 one disclosure policy.

Story Says Nasdaq Will Rise in 2025: 1 AI Stock to Buy Before It Does (Hint: It’s Not Nvidia) was originally published by The Motley Fool