Important points
-
Alphabet is finally getting some recognition from investors for its AI achievements.
-
Search engine giants have ample opportunity to benefit from increased AI spending.
-
The stock is a bit overvalued, but looks poised for further upside over the long term.
The rise of artificial intelligence (AI) has served as an unprecedented bellwether for technology stocks over the past three years. Especially semiconductor stocks, Nvidia, taiwan semiconductor manufacturingand broadcom Thanks to the AI revolution, they have all been ushered into the trillion dollar club.
As investments in AI infrastructure continue to evolve, we think chip stocks are likely to remain a sound investment option. But as 2026 approaches, another tech giant is taking center stage. alphabet(NASDAQ:Google)(NASDAQ:GOOG).
Where to invest $1,000 now? Our team of analysts has revealed what they believe. Best 10 stocks Join Stock Advisor to buy now. View stocks »
Let's dig into how Alphabet built an AI fortress ready to rule the future. From there, we'll explore the company's valuation trends and make the case why now is the best time to buy Alphabet stock directly.
Image source: Getty Images.
It's been a quiet three years for Alphabet…until now.
The AI revolution began almost exactly three years ago when OpenAI commercially launched ChatGPT. ChatGPT quickly captured the imagination of people around the world with its ability to instantly answer almost any question.
The dramatic rise in popularity of large-scale language models (LLMs) has led some on Wall Street to raise the idea that traditional search tools like Google are doomed. Let's consider the business interests at hand here. With everyone's attention on chatbots, why do advertisers continue to pay a premium to platforms like Google and YouTube?
Although Alphabet's advertising business showed signs of slowing, the company's cash cow remained somewhat resilient. For several years, revenue from Google and YouTube hasn't been as strong as it once was, but it hasn't plummeted at an alarming rate either.
But what many investors overlooked were Alphabet's other businesses. At the beginning of the AI revolution, Google Cloud was generating approximately $29 billion in annual revenue. Meanwhile, this division of Alphabet was unprofitable.
Fast forward to today, and Google Cloud is currently on track to generate more than $50 billion in annual revenue and boast positive operating margins. What's even more interesting is that Google Cloud landed big deals with both OpenAI and Anthropic. These two LLMs were once seen as the ultimate existential threat to Google's relevance.
In addition to the success of its cloud division, Alphabet also successfully launched its own LLM called Gemini. According to management, Gemini has more than 650 million monthly active users (MAUs) and search queries have tripled quarter-over-quarter.
Why 2026 will be a great year for Gemini
I think for most of the AI revolution, the consensus around Alphabet was about uncertainty. Not everyone accepted Google's demise, but it's safe to say that Alphabet took time to prove that its AI ambitions were paying off.
One of the company's biggest drivers for next year is expanding Google Cloud by commercializing custom hardware. Specifically, Alphabet's application-specific integrated circuits (ASICs), known as tensor processing units (TPUs), are garnering some early attention. apple And humanity.
TPUs aren't going to overtake Nvidia's GPU business any time soon, but I think Alphabet is poised to spark a new wave of growth in the currently dominated cloud infrastructure market. Amazon Web services (AWS) and microsoft Azure.
Alphabet stock could rise to new highs next year
As of this writing, Alphabet's forward price/earnings ratio (P/E) is hovering around 28 times, the highest level during the AI boom.
GOOGL PE Ratio (Forward) Data by YCharts
Generally, I tend to stay away from momentum stocks. It's often dangerous to buy premium and hope the stock price will rise significantly by the time a company reaches an all-time high.
This is a rare instance where I think the opposite is true. Alphabet's current price increase reflects two factors: an assessment of the company's current performance and a bullish outlook that Alphabet will maintain its strong performance.
Alphabet's ecosystem of search, cloud computing, consumer electronics, and custom hardware is a major differentiator compared to its mega-cap peers. The company has unique flexibility built into its DNA, benefiting from AI across its various assets and subsidiaries in every market cycle. These dynamics position Alphabet as a particularly durable business over the long term.
I expect Alphabet to benefit from these tailwinds more than any single chip designer or software developer, as investment in AI infrastructure is expected to continue to increase next year.
With this in mind, Alphabet should continue to show signs of accelerating revenue and margin expansion across its businesses next year, which should lead to further buying from shareholders. Against this backdrop, I see Alphabet as the best opportunity in the AI industry as we approach 2026.
Should you buy Alphabet stock now?
Before buying Alphabet stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks Investors can buy now…and Alphabet wasn't one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
when to think about it Netflix This list was created on December 17, 2004…if you invested $1,000 at the time of recommendation. you have $509,039!* or when Nvidia This list was created on April 15, 2005…if you invested $1,000 at the time of recommendation. you have $1,109,506!*
Now, the important thing to note is that stock advisor Total average return is 972% — compared to the S&P 500's 193%, a market-beating outperformance. Don't miss our latest Top 10 list. stock advisorjoin an investing community built by retail investors, for retail investors.
See 10 stocks »
*Stock Advisor will return on December 21, 2025.
Adam Spatacco has held positions at Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
