Stop searching for Big Tech's best artificial-intelligence stock. Alphabet has been the clear winner, and the gains could keep coming.
A year ago, the future looked bleak for the company. In August 2024, U.S. District Judge Amit Mehta had declared Google a " monopolist," leaving investors to wonder if the internet search pioneer would be broken up. As that legal drama unfolded, OpenAI's ChatGPT went from one million users, days after its November 2022 launch, to 300 million weekly active users in December 2024, raising the question of whether Google's search business would be destroyed by AI. The fears left Alphabet stock trading for about 20 times estimated earnings for the next 12 months, the lowest price/earnings ratio for a Magnificent Seven stock, and below the S&P 500's 22 times multiple.
What a difference a year makes. A breakup probably would have been nothing to fear, given that Alphabet has YouTube, self-driving ride-hailing company Waymo, the Android operating system, a cloud business, and foundational AI and AI-chip technologies -- parts that might have been worth more than the whole.
But it never came to that. In September, a judge came back with relatively mild penalties proposed on the antitrust front. And, despite worries that AI would disrupt Google, the company has shown a remarkable ability to adapt and grow, with four consecutive earnings beats under its belt and the recent launch of Gemini 3. The stock has gained almost 70% over the past 12 months and traded at a record high this week. Berkshire Hathaway even bought the stock.
The question now: What should investors do with the stock? Barron's recommended it 12 months ago, when we said it was undervalued by 50%. It did better than that. Shares now trade at 26 times earnings. About half of the gain came from a P/E multiple expansion, while the other half came from earnings growth.
While rapid gains often leave investors nervous, and itching to dump their biggest winners, investors should stay the course. Don't expect a repeat of the past 12 months, but good old business execution should help push shares higher.
"The stock going from $160 to over $300 today has made it look less attractive," says Oakmark Funds portfolio manager Bill Nygren. "[But Alphabet is] still not selling for more than we think it's worth."
For starters, Alphabet still isn't all that expensive. Even at 26 times earnings, it's the second-cheapest of the Magnificent Seven, with only Meta Platforms, at 20 times, trading at a lower P/E multiple. The comparison between the two is telling. Both are making gobs of money, and both are spending lavishly on their AI capabilities. But whereas Meta isn't seeing much of a return just yet -- its pretax profit margins fell two percentage points year over year, while capital spending more than doubled to almost $19 billion from around $8 billion -- Alphabet has been getting more profitable. It grew third-quarter pretax profit by 39% and expanded pretax profit margins by seven percentage points even as it spent $24 billion, up from $13 billion a year earlier.
It will take performances like that to keep Alphabet shares working. In 2025, earnings will likely end up north of $10 a share, up from the $9 Wall Street expected almost a year ago. Following the pattern, 2026 earnings would have to end up closer to $12 or $13 a share, up from the current $11, for the stock to keep working.
The good news is that there is nothing unreasonable about that scenario. Growth in Alphabet's cloud business, in particular, could be a catalyst for shares, says New Street Research analyst Dan Salmon. Currently, Wall Street expects Google Cloud to generate 2026 revenue of $75 billion, up from about $57 billion in 2025.
That growth is predicated on AI demand remaining robust, but there's no sign yet of slowing demand -- particularly after Nvidia's blowout earnings released on Nov. 19. And yes, that means more spending. The four main hyperscalers -- Alphabet, Microsoft, Meta, and Amazon.com -- grew sales 25% year over year in the third quarter and are expected to spend roughly $366 billion on new equipment in 2025, $478 billion in 2026, and $534 billion in 2027. Financing that spending will be a snap. All four companies have ample cash flow and pristine balance sheets, with easily north of $1 trillion in total borrowing capacity. If they decided to leverage their balance sheets for growth, there would be insatiable demand for their debt, says Matthew Eagan, a portfolio manager at Loomis, Sayles.
And with each iteration of the AI apps, the use case just keeps getting broader. Google's unveiling of its Gemini 3 AI model on Nov. 18 demonstrated that, rather than falling behind in the AI arms race, the company is closing the gap. The model includes new tools such as Deep Think, for projects that require more stringent reasoning; generative user interfaces; and improved "vibe coding" for software developers, among other benefits. Gemini has been closing the gap with ChatGPT, with 650 million monthly active users to ChatGPT's 800 million weekly active users. (The companies don't report like-for-like on users.)
While it's difficult to know which AI app will emerge as the winner, Alphabet has demonstrated its ability to generate value in the past -- and should be able to in the future, as the launch of Gemini 3 demonstrates. "The early response seems to be kind of a wow," says Oakmark's Nygren. "I don't really know why that should surprise people. Alphabet would have to have been heroically bad at investing capital to have not been at least in a co-leadership position."
For Evercore analyst Mark Mahaney, Alphabet has proven that it can use AI to create new products that can create new revenue opportunities across all of its products. It may no longer be cheap, but its shares are still worth owning. "GOOGL is no longer a Classic DHQ (dislocated high quality) stock, but the fundamentals and level of innovation here are very impressive," writes Mahaney, who has a $325 price target on the stock.
Trim positions if you have to, but hold on to the shares of this AI winner.