Underrated AI Stocks with Long-Term Growth Potential: Contrarian Value in Alphabet and Nebius Group

The AI revolution is reshaping industries, but not all players are created equal. While investors flock to hyped AI startups and flashy consumer-facing tools, two infrastructure-focused giants—Alphabet (GOOGL) and Nebius Group (NBIS)—are quietly building the backbone of this transformation. These companies combine AI leadership with strong fundamentals, growing markets, and undervaluation relative to peers, making them compelling long-term buys for investors seeking exposure to the AI revolution without overpaying for hype.

Alphabet: The Quiet Giant of AI Infrastructure

Alphabet's 2025 financials reveal a company betting big on AI. Despite a 5.5% free cash flow (FCF) margin—the lowest in years—its strategic investments are paying off. Google Cloud, Alphabet's crown jewel, grew revenue by 32% year-over-year to $13.6 billion in Q2 2025, with operating margins doubling to 20.7%. This growth is driven by Alphabet's early leadership in AI research (e.g., TPUs, transformers) and its ability to attract AI startups like Anthropic and World Labs.

The company's aggressive $85 billion in 2025 capital expenditures, though straining short-term FCF, are positioning it to dominate AI infrastructure. Google Cloud's profitability and Alphabet's global fiber network give it a unique edge. While its FCF margin lags behind Microsoft's 20% and Apple's 28%, Alphabet's forward P/E of 25 and P/FCF of 20 are still below the S&P 500's 18 and 12, suggesting undervaluation relative to its long-term AI vision.

Why It's a Contrarian Buy: Alphabet's valuation discounts its AI potential. With Google Cloud's margins improving and AI-driven demand surging, the company is likely to outperform in the next 3–5 years. Investors who ignore short-term FCF concerns may reap rewards as AI adoption accelerates.

Nebius Group: The AI Infrastructure Upstart

Nebius Group, a relative newcomer, has exploded onto the scene with a 625% year-over-year revenue surge to $105.1 million in Q2 2025. Its core AI cloud infrastructure business operates at near-peak utilization, driven by demand for copper GPUs and partnerships with clients like Cloudflare and Shopify. The company raised its 2025 annualized run-rate revenue (ARR) guidance to $900 million–$1.1 billion, reflecting confidence in its growth trajectory.

Nebius is expanding rapidly, securing 220 MW of GPU-ready power by 2025 and planning 1 GW by 2026. Its balance sheet is robust, with $1.68 billion in cash and $4 billion in raised capital, including a $1 billion convertible note issuance in Q2 2025. Despite unprofitability (adjusted EBITDA remains negative), Nebius's vertically integrated model—combining in-house software, hardware, and large-scale GPU clusters—positions it to capture a significant share of the AI infrastructure market.

Why It's a Contrarian Buy: Nebius's EV/Revenue ratio of 65.67 may seem high, but its explosive growth and strategic partnerships with NVIDIA (via Blackwell GPUs) justify the premium. The company is outpacing hyperscalers like CoreWeave and is a critical player for AI startups. For investors willing to tolerate short-term losses, Nebius offers a high-growth, high-reward opportunity.

Comparing the Two: Risk vs. Reward

Both Alphabet and Nebius face challenges. Alphabet's FCF margin is under pressure, while Nebius's unprofitability and high valuation raise execution risks. However, their fundamentals and market positions make them stand out:
- Alphabet benefits from its vast R&D budget, established cloud ecosystem, and long-term AI vision.
- Nebius leverages agility, first-mover advantage in Europe, and strategic capital to scale rapidly.

Investment Thesis

For contrarian investors, these stocks represent undervalued opportunities in the AI infrastructure space. Alphabet's discounted valuation and Google Cloud's momentum make it a safer, long-term bet. Nebius, while riskier, offers explosive growth potential for those comfortable with volatility.

Action Plan:
1. Alphabet (GOOGL): Buy on dips as FCF stabilizes and AI cloud margins expand. Target entry points near $130–$140.
2. Nebius Group (NBIS): Allocate a smaller portion of a high-risk portfolio to capitalize on its growth story. Monitor GPU deployment timelines and client retention.

The AI infrastructure market is still in its early stages, and both Alphabet and Nebius are well-positioned to benefit. By focusing on fundamentals rather than short-term hype, investors can secure long-term gains in this transformative sector.