Alphabet’s Costly Climb to the Top

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Alphabet has decisively outperformed its rivals, emerging as the strongest performer among the "Magnificent Seven" stocks in 2025. This remarkable ascent, featuring a share price surge of nearly 70% over the past twelve months, has inevitably elevated market expectations. As the tech behemoth pours billions into securing its artificial intelligence future and its valuation has expanded significantly, a pressing question now confronts investors: Can profit growth in the coming year keep pace with its skyrocketing expenditures?

Operational confidence is anchored on two core segments: the cloud business and the successful launch of the Gemini 3 AI model. The cloud division is now Alphabet's fastest-growing unit, reporting a 34% revenue increase in the third quarter of 2025. A particularly striking indicator is its $155 billion backlog, pointing toward substantial future income. Some market researchers even project growth exceeding 50% for this segment in 2026.

Simultaneously, the November debut of Gemini 3 markedly shifted market sentiment. With its capability to process video, image, and text simultaneously, Google's parent is no longer seen as an AI follower but as a technology leader. User numbers for the Gemini app leapt from 450 million to approximately 650 million monthly active users, significantly narrowing its gap with ChatGPT.

A Multi-Billion Dollar Bet on Infrastructure

To lock in its AI sector dominance, Alphabet is spending heavily. Just before year-end, on December 22, the conglomerate announced the $4.75 billion acquisition of Intersect Power. This strategic move is less about immediate revenue and more about velocity; the purchase grants Alphabet direct access to gigawatt-scale energy and data center projects.

Management has clarified that energy availability is the critical bottleneck for AI applications. Integrating Intersect Power is intended to bring new capacity online faster—a crucial competitive edge, given that AI workloads demand unprecedented computing power.

Navigating the "Investment Year" of 2026

This stock market triumph, however, comes at a price. Valuation multiples have risen noticeably. With a current share price of $312.98, the equity trades near its 52-week high of $314.35. The price-to-earnings (P/E) ratio has expanded considerably from its lows in April 2025.

Concurrently, massive investment requirements are pressuring margins. For 2026, while analysts anticipate a revenue jump to $455 billion, they forecast only a modest earnings-per-share growth of 6%. The reason lies in capital expenditures (CapEx), which are expected to surpass the $114 billion mark in 2026.

The market is also watching subsidiary Waymo with keen interest. Reports suggest the robotaxi division is aiming for a funding round at a valuation between $100 and $110 billion. This, combined with the potential sale of its proprietary AI chips (TPUs) to external customers like Meta, could be key to justifying the elevated valuation this year. The current median analyst price target stands at $334, implying further, though more limited, upside potential.