The artificial intelligence trade might be entering a new chapter, and this time, it's not all about the chipmakers. After nearly two years of Nvidia dominating the narrative, investors are starting to look at companies that can actually turn AI into cold, hard cash — and Alphabet is leading the charge.
Shares of Alphabet (Alphabet Inc. (GOOGL)) have rallied about 23% so far this year, outpacing Nvidia's (Nvidia Corp. (NVDA)) 14% gain over the same period. The Google parent is now closing in on Nvidia as the world's most valuable company, and that shift is spilling into exchange-traded funds. Cloud computing, software, internet platforms, and diversified AI exposure are suddenly the hot tickets — what some analysts are calling the "second wave" of the AI ETF trade.
From AI Builders to AI Monetizers
The first phase of the AI rally was all about infrastructure. Semiconductor-focused funds like the VanEck Semiconductor ETF (SMH) and the iShares Semiconductor ETF (SOXX) were the darlings of the market, riding Nvidia's coattails as the face of generative AI.
But the narrative is shifting. Investors are increasingly focused on companies that can turn AI spending into real revenue growth — in advertising, cloud services, enterprise software, and even autonomous driving. Alphabet's latest quarterly results accelerated that story. The company reported first-quarter revenue of $110 billion, up 22% year over year, while Google Cloud revenue surged 63% to $20 billion. Operating margins stayed above 36%, even as Alphabet doubled capital expenditures to $35.7 billion to expand AI infrastructure.
Alphabet's AI ecosystem is sprawling: Gemini models, custom TPUs, YouTube, Search, Waymo, and cloud security firm Wiz. That breadth makes a strong case for broader AI-platform ETFs over pure semiconductor bets.
ETFs Riding Alphabet's AI Momentum
That dynamic is lifting diversified technology and cloud funds with sizable Alphabet exposure. Here are some of the winners:
- iShares US Technology ETF (IYW) has surged nearly 19% over the past month and 17% year-to-date, with Alphabet (share classes A and C) representing roughly 13% of holdings.
- Motley Fool 100 Index ETF (TMFC) has climbed close to 9% over the past month. The fund allocates more than 9% to Alphabet Share Class C (GOOG).
- Invesco Nasdaq Internet ETF (PNQI), another heavy Alphabet play with 10% weight, has benefited from renewed enthusiasm around internet and AI-platform companies.
- Cloud-focused ETFs like the First Trust Cloud Computing ETF (SKYY) and the Global X Cloud Computing ETF (CLOU) are also seeing renewed attention. Both are up 15% and 20%, respectively, over the past 30 days as enterprise AI adoption accelerates.
Why Alphabet's AI Position Looks Different
The broader shift suggests Wall Street may be rotating from "AI builders" to "AI monetizers." Unlike Nvidia, whose fortunes are still tied to AI hardware demand, Alphabet controls multiple layers of the AI stack — chips, models, cloud distribution, and consumer applications. That lets it integrate AI directly into profitable businesses.
Its diversified revenue streams also set it apart. Beyond Gemini and cloud computing, Alphabet benefits from resilient Search advertising, YouTube growth, and the expansion of autonomous-driving unit Waymo.
Valuation Risks Still Loom
Despite the momentum, valuation concerns remain. Alphabet now trades around 28 times forward earnings, according to market data, while Nvidia's forward multiple is roughly 27x. That raises the risk that any slowdown in AI spending, regulatory scrutiny, or softer cloud demand could pressure the stock after its massive rally.
For ETF investors, though, diversified AI exposure may offer a middle ground: participation in Alphabet's AI momentum without taking on the full risk of a single-stock trade in an increasingly crowded market.
