Investor excitement about artificial intelligence (AI) has added trillions of dollars of capital to several companies in recent years. But many of the biggest AI stocks have stagnated in value in recent months as markets reassess the value created by all AI spending. The market ultimately rewards business execution and financial results.
One of the world’s largest tech companies appears poised to achieve strong growth in multiple areas of its business by 2026, thanks to advances in artificial intelligence. Ultimately, that could push stock valuations to $5 trillion by the end of the year. The reasons I think are as follows alphabet‘s (GOOG 2.25%) (Google 2.01%) The stock will rise 35% from here to reach that milestone.
Image source: Getty Images.
Alphabet’s revenue growth heads towards the clouds
Alphabet saw cloud computing revenue accelerate dramatically in the fourth quarter, with revenue up 48% year-over-year. This growth was driven by demand for AI infrastructure and demand for AI services.
Selling infrastructure is easy. Alphabet provides access to graphics processing units (GPUs) to developers who want to train or use large language models on their servers. Alphabet differentiates its products with custom Tensor Processing Units (TPUs), which have received a lot of attention lately.
This is also thanks to requests from Anthropic and advancements in Alphabet’s own AI, which is trained and run on TPUs. flat meta platform uses Alphabet’s TPUs for some of its AI work, even though it develops its own custom AI accelerators. If more of Alphabet’s workloads move from GPUs to lower-cost TPUs, it could benefit Alphabet’s operating margins, which have already seen significant improvement over the past few years.
Alphabet’s AI service is based on the Gemini model, which has quickly caught up with OpenAI and Anthropic’s models. This has driven demand for the Vertex AI platform and Gemini API, which enables customers to use its underlying models to build and deploy generative AI applications and agents. Growth in AI services should also improve margins for Alphabet’s cloud computing business.
I expect Alphabet to continue to show progress on both fronts. As mentioned earlier, Alphabet’s TPUs are attracting significant interest from major AI developers. meanwhile, apple plans to license an improved version of Siri to Alphabet’s Gemini, which should boost revenue in the coming years.
AI drives growth across your business
While many companies tout the product improvements enabled by generative AI, Alphabet is one of the few that is realizing significant economic benefits from integrating more advanced AI across its core products.
Many analysts expected chatbots from OpenAI, Anthropic, and Perplexity to eat into Google search volume, but the opposite happened. Management said on an earnings call in January that search usage increased more than ever in the fourth quarter. This is a result of features like AI Overview and AI Mode, which provide generative AI responses to search queries. This increases engagement by encouraging users to ask Google more complex questions. AI also enables more search methods, such as voice and images.
Advances in the Gemini model have given Google a deeper understanding of search intent, leading to better ad targeting and higher monetization rates. Generative AI also helps marketers develop and test new ad campaigns and specific ad copy across Google’s products, including YouTube.
As a result, Alphabet should see accelerating Google Search revenue growth through 2025, and continue that trend in 2026 as its AI capabilities improve. That momentum could further accelerate if management decides to monetize the Gemini app directly with ads. As of January, it had 750 million monthly active users.
Today’s changes
(-2.25%) $-6.88
current price
$298.85
Key data points
Market capitalization
$3.7 trillion
daily range
$296.77 – $304.29
52 week range
$142.66 – $350.15
volume
779K
average volume
21M
gross profit
59.68%
dividend yield
0.28%
YouTube is boosted by the aforementioned ad creation and targeting capabilities, which also benefits search. However, creators in some countries also have access to AI tools that can help provide background images and music, assist with editing, and suggest ideas for video titles and script outlines. This ultimately increases the amount of content on the platform and makes it more engaging. Access to these capabilities remains limited, but we expect Alphabet to expand them as inference costs drop and monetization improves.
Finally, Alphabet is making very good progress with its self-driving car business, Waymo. The robotaxi service is currently offering 150,000 to 400,000 rides per week by the end of 2024. We currently serve 10 cities and are rapidly expanding to new cities in 2026, with 21 more coming soon.
Alphabet’s path to $5 trillion
As of this writing, Alphabet is worth about $3.7 trillion. To reach $5 trillion, its value would need to rise 35% by the end of the year. But it’s possible, as the stock is currently trading at a very attractive valuation.
Investors can buy shares at about 26 times expected future earnings. As mentioned earlier, Alphabet’s cloud computing business grew 48% year-over-year in the fourth quarter and has multiple catalysts that could support continued growth in 2026. Meanwhile, the company’s core advertising business was firing on all cylinders, accelerating revenue growth, reaching 14% growth last quarter. Combined with margin expansion, Alphabet is on track to achieve superior revenue growth in 2026.
Analysts are currently modeling earnings per share growth of just 7%, which may be too conservative. However, those looking out to 2027 expect earnings growth to accelerate to 16% next year, reaching $13.41. If average earnings estimates for 2027 remain stable throughout the year, Alphabet stock would need to trade at a multiple of 31 times expected earnings to be worth $5 trillion. Considering the overall growth of the business, this seems like a fair price to pay for the stock. But as earnings expectations rise and the hurdle for Alphabet to reach the $5 trillion milestone gets lower, I think Alphabet is likely to continue to impress well into 2026 and 2027.
