MW Why Alphabet and Amazon could be two of the best AI stocks next year
By Christine Ji
As AI spending continues to rise, these two Big Tech names will be best-positioned to deliver a return on investment, according to JPMorgan
Shares of Alphabet have gained 65% this year thanks to growing AI momentum around its cloud business and frontier model Gemini.
As the artificial-intelligence boom enters its fourth year, investors are keeping their eye on Big Tech's massive spending and monetization plans. According to JPMorgan, two "Magnificent Seven" stocks are shaping up to be the best way to play the next leg of the trade: Alphabet and Amazon.com.
JPMorgan believes that AI spending in 2026 will break new records, with over $400 billion spent between Alphabet $(GOOGL)$ $(GOOG)$, Amazon (AMZN) and Meta Platforms (META). Among those names, Alphabet and Amazon are poised to deliver the best return on investment, analyst Doug Anmuth wrote in a Friday report, arguing that the capital expenditures will pay off with accelerating cloud growth and expanding margins.
Alphabet's stock has delivered an impressive performance, rallying 65% this year, and Anmuth said that momentum would continue thanks to the company's full-stack AI ecosystem, which spans from its tensor-processing units to frontier model Gemini.
"Gemini is once again leading the AI leaderboards," Anmuth wrote, noting that the model is being infused across virtually all Google products. The model has steadily gained market share this year, reaching over 650 million monthly active users. Google has also combated the idea that AI will kill its Search business by developing AI Overviews and AI Search.
Read: Gemini deals ChatGPT a fresh blow as Google's AI momentum builds
Additionally, Google Cloud could see revenue growth accelerate to over 40% next year, as enterprise demand for AI compute explodes, according to Anmuth. Last quarter, the business grew 34% year over year.
While the stock trades near historic highs, at roughly 25x JPMorgan's estimated 2027 earnings, Anmuth said Alphabet's strong AI leadership warrants the premium and "could drive upside to our projections and support higher multiples." He gives Alphabet's stock a $385 price target by December 2026, based on a forward earnings multiple of nearly 30x.
Read: How Google could follow Nvidia to become the next $5 trillion company
Amazon had a quieter 2025, with its stock up just 5% amid concerns that its cloud division was losing ground in the AI race.
JPMorgan believes that narrative is stale. Following Amazon's recent re:Invent conference, Anmuth is confident that Amazon is improving its AI positioning with its custom Trainium chips, foundational model platform Bedrock and expanded partnerships. Anmuth projects that Amazon Web Services' revenue growth will reaccelerate to 23% in 2026, "which could prove conservative."
Beyond AWS, JPMorgan sees solid growth in the core retail business from underpenetrated categories like grocery and apparel, as well as more same-day delivery locations.
For investors concerned about the return on investment for cloud investments, Amazon is a top pick, according to Anmuth. Even with heavy AI spending, JPMorgan predicts that Amazon's free cash flow will more than double to $59 billion next year from 2025 estimates of $24 billion in 2025. A major driver of this growth will be margin expansion in Amazon's retail business, driven by robotics and a more efficient delivery network, according to JPMorgan.
Beyond the cloud, J.P. Morgan sees "solid" growth in the core retail business, fueled by underpenetrated categories like grocery and apparel, as well as faster delivery speeds from its "Same-Day" facilities.
Alphabet and Amazon are a part of JPMorgan's "Best Ideas in 2026" list among internet stocks, which also features DoorDash $(DASH)$ and Spotify Technology (SPOT).
Read on: Amazon's stock is this analyst's 'best idea' for these 3 reasons
-Christine Ji
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(END) Dow Jones Newswires
December 12, 2025 10:24 ET (15:24 GMT)
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