Alphabet Emerges as Key AI Winner for 2026

December 21, 2025 at 19:17 UTC

5 min read

Key Points

Wall Street analysts are lifting Alphabet price targets on AI momentum and cloud growth.
Google Cloud just landed a security deal reportedly approaching $10 billion.
Alphabet’s Gemini AI and TPUs are reshaping its role in the AI ecosystem.
Regulatory and antitrust actions remain a major overhang for Alphabet.

AI trade shifts to ‘selective’ winners as 2026 nears

Recent market commentary indicates that the broader artificial intelligence trade remains intact but is becoming more selective heading into 2026. Nomura’s Charlie McElligott described investors as using a “scrutiny scalpel,” with clearer dispersion between winners and losers in AI-related stocks. Tech shares have been volatile amid concerns over funding for large data center projects, including reports that Blue Owl Capital would not support Oracle’s $10 billion data center plan and construction delays at CoreWeave. Despite these worries, Micron Technology’s stronger-than-expected quarterly results, driven by AI-related memory demand, helped spark a rebound in AI names. Goldman Sachs forecasts S&P 500 earnings growth of more than 12% in 2026, largely powered by seven mega-cap technology companies, including Alphabet, Microsoft, Amazon, Nvidia, Apple, Broadcom, and Meta. These “Magnificent 7” stocks are up an average of about 21% this year, outpacing the S&P 500’s roughly 16% gain, and strategists expect more pronounced differentiation within the group next year.

Alphabet’s AI push: Gemini, TPUs and cloud acceleration

Across several reports, Alphabet is increasingly highlighted as a central AI beneficiary. The company’s Gemini large language model has become a focal point, with one analysis citing more than 650 million monthly active users and search queries rising threefold quarter over quarter. Alphabet has integrated AI Mode into Search, and paid search clicks reaccelerated through 2025, with growth of 2%, 4%, and 7% in the first three quarters after the May rollout. On the infrastructure side, Gemini 3 was trained on Alphabet’s in-house Tensor Processing Units, and multiple accounts note growing external interest in TPUs from companies such as Meta and Anthropic. Alphabet is also commercializing TPUs more broadly through Google Cloud, positioning them as an alternative to traditional GPU-based systems. Analysts see this as a way for Alphabet to tap into the cloud infrastructure market dominated by Amazon Web Services and Microsoft Azure, while leveraging its own AI stack.

Google Cloud and Waymo add new growth pillars

Google Cloud has shifted from a once-unprofitable segment to a scaled, profitable business and is now central to the Alphabet investment case. Several articles note that Google Cloud is on pace for more than $50 billion in annual revenue, with one citing a $60 billion run-rate and nearly $5 billion operating profit run-rate, alongside 34% year-over-year growth in the latest reported quarter and margin expansion. Reuters reporting referenced in multiple pieces describes an expanded partnership with cybersecurity firm Palo Alto Networks that is Google Cloud’s largest-ever security services deal, with a value approaching $10 billion over several years. Google Cloud has also secured major AI customers, including OpenAI, Anthropic, and the U.S. Department of War’s Chief Digital and Artificial Intelligence Office, which selected Gemini for Government as the first enterprise AI deployed in the GenAI.mil environment for 3 million personnel. Beyond cloud, Alphabet’s autonomous driving unit Waymo is delivering over 1 million autonomous rides per month and is reportedly in talks to raise billions of dollars at a valuation at or above $100 billion, keeping its “Other Bets” portfolio in focus for investors.

Regulatory pressure and valuation shape risk debate

Alongside AI-driven optimism, regulatory and antitrust developments are a persistent risk factor for Alphabet. A U.S. federal judge has ordered Google to limit default search and AI app contracts to one year as part of antitrust remedies after a finding that the company illegally monopolized online search markets. In Europe, the European Commission has opened proceedings into Alphabet’s use of online content for AI features such as AI Overviews, examining potential breaches of EU antitrust rules. These actions are viewed as headline risks that can move the stock, particularly in low-liquidity periods. At the same time, Alphabet’s capital spending is rising sharply: the company lifted its 2025 capex outlook to $91 billion–$93 billion, citing AI and cloud demand, and signaled a significant further increase in 2026. This has fueled debate over free cash flow versus long-term AI positioning. Despite these concerns, Alphabet shares trade near record highs, with a forward price-to-earnings multiple around the high 20s, and have delivered gains on the order of several dozen percent over the past year.

Wall Street turns more bullish on Alphabet into 2026

Analyst sentiment toward Alphabet remains broadly positive and has strengthened in recent weeks. Wedbush raised its price target on Alphabet to $350 from $320 while maintaining an Outperform rating, citing strong performance among consumer internet companies and expecting performance to diverge in 2026 as investors focus on agentic AI adoption, AI monetization, and autonomous vehicle disruption. Bank of America’s Justin Post reiterated a Buy rating with a $335 target, and other firms, including TD Cowen, Pivotal Research, BMO, and multiple global banks, have lifted targets into the $330–$400 range, often pointing to AI Search engagement, Gemini usage metrics, and cloud growth. MarketBeat data across several notes show an overall “Moderate Buy” consensus, with dozens of Buy or Strong Buy ratings and relatively few Holds. Some strategists and commentators now single out Alphabet as a preferred AI name within the mega-cap group, arguing that its combination of search, YouTube, cloud, custom hardware, and autonomous driving provides multiple avenues to benefit from sustained AI investment as 2026 approaches.

Key Takeaways

Alphabet is moving from perceived AI laggard to a leading multi-asset AI platform spanning search, cloud, hardware, and autonomous driving.
Google Cloud’s scale, profitability, and large AI-focused deals are turning it into a second major earnings engine alongside advertising.
Heavy AI capex and intensifying antitrust scrutiny are the main counterweights to a broadly bullish analyst stance and strong recent share performance.