Important points
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After ChatGPT took away some of its search traffic, Alphabet bounced back by introducing AI Overview and AI Mode.
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Alphabet's Gemini 3 is considered the leading LLM.
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Management plans to increase the tech giant's capital spending in 2026.
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It's clear that artificial intelligence (AI) is revolutionizing the world, and all major hyperscalers are investing hundreds of billions of dollars in efforts to capitalize on this trend. companies like Amazon, meta platformand alphabet (NASDAQ:GOOG) (NASDAQ:Google) Companies are developing robust AI businesses to drive their progress, including: Nvidia and broadcom provides the main hardware infrastructure that supports the technology.
If 2025 is the year of expansion, 2026 could be the year these companies' investments begin to pay off, and Alphabet could be a big winner.
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More AI for more people
The current type of large-scale language models (LLMs) were first made publicly available through OpenAI's ChatGPT three years ago, but Alphabet has actually been using similar technology for years to power its Google search engine. However, the launch of ChatGPT changed the AI landscape, starting a new LLM race, and Alphabet now offers its own generative AI services.
At one point, it looked like Google was on the verge of losing its search dominance as more people asked ChatGPT to do so, but Alphabet responded effectively by rolling out its own competitive LLM, reversing the scenario by offering AI Overview and AI Mode on the search page. Alphabet's revenue has soared recently as paid clicks have accelerated. Third-quarter sales increased 16% year-over-year, with strong performance across the business.
Image source: Alphabet.
Today, its operations include a wide range of products and services, including YouTube, Android, Waymo self-driving cars, and more. Google Search remains our core business, but there's a lot more going on. Its diverse revenue streams will provide various growth drivers in 2026 and beyond.
However, Google Cloud Platform has become particularly important these days. Alphabet's cloud services, where clients leverage generated AI to create their own apps and agents, saw cloud services revenue increase 34% year-over-year in the third quarter. The accelerating pace of growth in this sector means that the opportunities created using AI are attracting more clients to the cloud, and Alphabet's newest LLM, Gemini 3, ranks among the top LLMs in use today, according to several leaderboards. Gemini has 650 million active users, and the company leverages its strong user base to monetize these services.
Not just LLM
Beyond its robust LLM, which may be winning the LLM war, at least for now, and its search functionality, which still holds about 90% market share, Alphabet has other AI products driving growth. The company has designed its own AI accelerator chip, called a Tensor Processing Unit (TPU), which it uses to train and power the LLM, along with the Nvidia graphics processing units (GPUs) that most of its competitors currently use.
“The large, reliable infrastructure that powers all of Google's products is the foundation of our stack and a key differentiator,” said CEO Sundar Pichai.
Alphabet has recently made some significant deals regarding TPU. TPUs are specialized chips designed for deep learning and inference workloads, as opposed to Nvidia's more general-purpose GPUs. TPUs give Alphabet an edge in AI development, especially as LLMs become more sophisticated and require more of this kind of processing power to deliver the results users want. Alphabet has a significant partnership with Anthropic, which makes the popular Claude LLM, and is rumored to be in talks with Meta to supply chips.
Further developments planned for 2026
During its third-quarter earnings call, management told investors that the company expects to spend $91 billion to $93 billion in capital expenditures in 2025, up from its previous estimate of $85 billion. The company is also planning a “significant increase” in capital investment in 2026.
The results of all this spending are already showing up in the form of accelerated cloud growth, accelerated paid clicks, and increased overall revenue, and next year could see these trends improve even further.
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Jennifer Cybill has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
