Leveraging a narrative shift from being an AI “catch-up” player to a “front-runner,” along with the structural advantages brought by its self-developed chips, Alphabet (GOOGL) surged over 65% in 2025, outperforming its peers to become the best-performing stock among the “Magnificent Seven”. Entering 2026, its dual engines of cloud business and search advertising are gaining robust momentum with AI empowerment. Coupled with a still reasonable valuation, it is regarded by the market as one of the most valuable long-term AI investment.
At the beginning of 2025, the market still harbored doubts about Alphabet’s pace in the AI race. However, one year later, its stock price delivered the most powerful response with a staggering increase of over 65%, not only significantly outpacing the broader U.S. stock market but also leaving competitors like Nvidia (NVDA), which gained nearly 39%, behind. The core of this reversal lies in the company’s successful reshaping of investor perception regarding its AI strategy.
Firstly, Alphabet’s Gemini large language model gained widespread market recognition over the past year, establishing itself among the top-tier LLMs. More importantly, AI technology is no longer just a distant vision but has tangibly translated into growth drivers. Through features like “AI Overviews,” AI-enhanced Lens, and “Circle to Search,” Google Search revenue growth accelerated significantly in 2025. Simultaneously, a pivotal antitrust trial ruling allowed it to maintain its default search engine agreement with Apple, removing a major regulatory overhang and preserving its unparalleled traffic distribution advantage.
Investors gradually came to recognize the strategic value of Alphabet’s self-developed Tensor Processing Units (TPUs). These custom AI chips, cultivated for over a decade, are deeply integrated into the company’s systems, providing a massive structural cost advantage in both model training and inference. This frees Alphabet from over-reliance on external chip suppliers and paying the so-called “Nvidia tax.” This is not only key for cost control but also represents a promising new business avenue.
Meanwhile, Google Cloud emerged as a powerful revenue driver in 2025. Its high-performance TPUs began to be offered externally through cloud services, attracting enterprise customers to run their own AI workloads. For instance, AI company Anthropic placed a $21 billion TPU order through Alphabet’s partner Broadcom. Analysts from Morgan Stanley predict that the number of TPUs deployed by customers could reach 5 billion by 2027, estimating that for every additional 500,000 TPUs deployed, it could bring Alphabet approximately $13 billion in potential revenue. This marks the transformation of its AI capabilities from a cost center to a profit center.
Despite the significant rally, Alphabet’s stock price at the beginning of 2026 does not appear expensive. Its forward P/E ratio is around 29x, which, although higher than a year ago, is considered justified given the company’s clear advantages and growth visibility in the AI field. In 2026, Alphabet’s growth will be reflected in the following three aspects:
Core Business Continues to Strengthen: AI is enhancing both the user experience and monetization efficiency of Google Search, with ad revenue still maintaining a 14% year-over-year growth last quarter. Cloud service revenue surged 34% year-over-year in Q3, becoming the fastest-growing segment.
Revenue Diversification to Weather Cycles: Beyond advertising and cloud, the company is building diversified revenue streams through subscriptions (e.g., Google One, YouTube Premium), hardware products, and even its Waymo self-driving car business, reducing dependence on the advertising cycle.
Clear Long-Term Growth Trajectory: Wall Street analysts expect the company’s earnings per share to maintain an approximate 15% annualized growth rate over the next several years. This lays a solid foundation for delivering market-beating returns to its shareholders.
In summary, Alphabet’s victory in 2025 was one of “perception reshaping” and “hard power validation.” It proved that the company not only possesses the world’s largest internet traffic gateway but also commands the core hardware and software technologies driving the next generation of computing (AI). As AI transitions fully from concept to commercialization, Alphabet, equipped with its chips, models, cloud platform, and vast application scenarios, has completed the crucial metamorphosis from a top internet company to an infrastructure provider and innovation leader in the AI era.
