Alphabet is becoming one of the biggest AI winners.
Alphabet (GOOGL -2.07%) (GOOG -1.99%) looks like one of the best places to put fresh money to work today because it’s finally showing that the artificial intelligence (AI) wave is going to expand its moat rather than chip away at it.
A year ago, there was plenty of worry that chatbots would cut into Google Search, but that story has flipped. By building Gemini directly into search, Alphabet is driving more queries and capturing more ad dollars. Search has always been its foundation, and it’s clear that AI isn’t eroding its lead; it’s making it stronger.
The company has turned the default advantage it built over the past few decades into an AI advantage. By owning Android and Chrome and giving Apple a lucrative revenue-sharing deal to make Google the default search engine for Safari, Alphabet effectively controls how billions of people access the internet. People don’t usually change defaults, so that reach is incredibly durable.
Now with AI Overviews, Circle to Search, Lens, and the new AI Mode that lets you click over to a chatbot in the same search window, Alphabet is converting that reach into higher-value traffic that is already lifting search revenue growth. Over two billion people are using AI Overviews monthly, and it’s just now rolling out AI Mode globally.
At the same time, cloud computing has become another big growth engine for the company. Google Cloud revenue jumped 32% last quarter to $13.6 billion, and operating income more than doubled to $2.8 billion. Demand is running so hot that Alphabet added $10 billion to its 2025 capex budget, which now sits at $85 billion, to try to keep up with demand.
Google Cloud is right at the heart of the AI boom, and Alphabet’s offering is arguably the best positioned, even though it is currently only the No. 3 player in the space. It offers one of the most complete stacks in the industry with its Gemini models, Vertex AI platform, and BigQuery analytics all running on top of its own custom chips called Tensor Processing Units (TPUs). Those TPUs give Alphabet and its customers a cost and performance edge, which will become even more important in the future as the AI market shifts more toward inference from training.
The company also developed Kubernetes, which has become the standard for containerized apps, and its pending Wiz acquisition will add one of the best cloud-security offerings. All of that makes Google Cloud much more than a distant No. 3 player.
Alphabet’s AI strategy is also capital-efficient because the company designs chips in-house, with some help from Broadcom. Its TPUs have been praised by Nvidia’s own CEO and let Alphabet have better power efficiency compared to off-the-shelf graphics processing units (GPUs). That advantage matters as workloads scale. On top of that, Alphabet owns one of the largest private fiber networks on the planet, which gives customers low latency and high performance worldwide.
Image source: Getty Images.
Beyond AI
In addition to its strength in search and cloud computing, Alphabet has optionality that few other mega-caps can match. Its Waymo robotaxi business is rapidly expanding its service into new cities, including big markets like New York, and it has a real first-mover advantage. If the company can reduce per-ride costs, this could become another meaningful business over the next decade.
Meanwhile, its Willow quantum computing chip is showing lower error rates as it scales, an early sign that Alphabet could be one of the leaders when quantum computing finally becomes commercially relevant. In addition, YouTube continues to draw ad dollars from traditional TV, giving Alphabet another dependable growth driver.
Investors have been slow to give Alphabet full credit for all of this. While the stock has moved higher, it still trades at a forward price-to-earnings (P/E) ratio of around 23 times projected 2026 earnings, which is a discount to its mega-cap AI peers.
Overall, Alphabet looks well positioned for the future. For investors putting $1,000 to work today and looking for a dominant AI winner that still isn’t priced like one, Alphabet stands out as the best growth stock to buy right now.
Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
