As demand for artificial intelligence (AI) remains strong, investors are wondering who the biggest winners will be next year.
The rise of artificial intelligence (AI) has been an unprecedented indicator for technology stocks over the past three years. In particular, semiconductor stocks including Nvidia, Semiconductor manufacturing in TaiwanAnd Broadcom have all been ushered into the trillion dollar club thanks to the AI revolution.
As investments in AI infrastructure continue to expand, I think it’s likely that chip stocks will remain sound investment choices. But as we approach 2026, I see another tech titan taking center stage: Alphabet (GOOGL +1.47%) (GOOG +1.55%).
Let’s take a look at how Alphabet has built an AI fortress ready to dominate the future. From there, I’ll explore the company’s valuation trends and explain why now is a great time to buy Alphabet stock hand in hand.
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 has quickly captured the imagination of people around the world with its ability to answer virtually any question instantly.
The dramatic increase in popularity among large language models (LLMs) has led some on Wall Street to speculate that traditional search tools like Google are doomed. Consider the business issues at hand here: why would advertisers continue to pay a premium on platforms like Google and YouTube when everyone’s attention was shifting to chatbots?
Even though Alphabet’s advertising business has shown some signs of slowing, the company’s cash cow has remained somewhat resilient. For a few years, Google and YouTube’s revenues weren’t as robust as before, but they also weren’t falling at an alarming rate.
Today’s change
(1.47%) $4.45
Current price
$306.91
Key Data Points
Market capitalization
$3.7 billion
Daily scope
$300.97 -$307.20
52 week range
$140.53 -$328.83
Volume
1.1 million
Average flight
37M
Gross margin
59.18%
Dividend yield
0.27%
What many investors didn’t know, however, were Alphabet’s other projects. At the start of the AI revolution, Google Cloud generated approximately $29 billion in annual revenue. During this time, this segment of Alphabet’s business was unprofitable.
Fast forward to today, and Google Cloud is now on track to achieve over $50 billion in annual revenue while posting positive operating profit. What’s even more interesting is that Google Cloud has won major contracts with OpenAI and Anthropic, the two LLMs that were once considered 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), while search queries are increasing threefold quarter over quarter.
Why 2026 Could Be Epic for Gemini
For most of the AI revolution, I think the consensus around Alphabet was one of uncertainty. While not everyone has accepted the extinguishing of the Google narrative, it’s fair to say that it took Alphabet a while to prove that its AI ambitions were paying off.
One of the company’s biggest enablers next year is an expansion of Google Cloud through the commercialization of custom hardware. Specifically, Alphabet’s application-specific integrated circuits (ASICs), known as tensor processing units (TPUs), have seen some success with Apple and anthropogenic.
While TPUs aren’t going to dethrone Nvidia’s GPU business anytime soon, I believe Alphabet is poised to unleash a new wave of growth in the cloud infrastructure market, currently dominated by Amazon Web Services (AWS) and Microsoft Azure.
Alphabet stock could reach new highs next year
As of this writing, Alphabet’s forward price-to-earnings (P/E) ratio is hovering around 28 – its highest level during the AI boom.
GOOGL PE ratio (forward) data by Y Charts
Normally, I tend to stay away from momentum stocks. Most of the time, when a company hits an all-time high, it is risky to buy the premium and expect the stock to rise significantly.
This is a rare case where I think the opposite is true. Alphabet’s current price increase reflects two factors: an appreciation of the company’s current operating performance and an optimistic outlook that Alphabet will maintain its strong performance.
Alphabet’s ecosystem (from search to cloud computing to consumer electronics to custom hardware and more) is a major differentiator compared to its large-cap peers. The company has a unique flexibility built into its DNA: it benefits from AI in its various assets and subsidiaries during any market cycle. This dynamic positions Alphabet as a particularly sustainable company in the long term.
With investments in AI infrastructure expected to continue to increase over the next year, I expect Alphabet to benefit more from these tailwinds than any chip designer or software developer.
With this in mind, I believe Alphabet will continue to show signs of accelerating revenue and profit margin expansion across its businesses next year, which should lead to even more shareholder buying. In this context, I see Alphabet as the best opportunity in the AI landscape heading into 2026.
