Alphabet’s Vertical Integration: Securing the Power Behind AI Growth

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In a strategic move to address one of the most significant constraints on artificial intelligence expansion, Alphabet is making a multi-billion dollar push into energy infrastructure. The tech giant's latest acquisition signals a shift from merely developing software and chips to directly controlling the power supply that fuels its vast data center operations.

Alphabet has agreed to acquire Intersect Power for $4.75 billion, a transaction that includes the assumption of debt. Intersect Power is a developer and operator of renewable energy projects, boasting a pipeline of 10.8 gigawatts of capacity scheduled to come online by 2028.

This deal is a direct response to a pressing issue facing all major cloud and AI providers: electricity has become a critical bottleneck. The immense computational power required to train and run advanced AI models demands a massive, predictable, and cost-effective energy supply. By bringing Intersect Power in-house, Alphabet secures direct access to solar, wind, and battery storage resources.

The primary objective is to bypass potential shortages and delays within the public power grid. Owning and developing energy projects is expected to accelerate data center expansion, reduce grid dependency, and stabilize the long-term operational costs of Alphabet's AI infrastructure. This acquisition is less about diversifying into a new business and more about building a foundational layer to support its core cloud and AI services.

Record Financials Fuel Aggressive Capital Expenditure

This ambitious investment strategy is underpinned by exceptionally strong financial performance. For the third quarter of 2025, Alphabet surpassed $100 billion in quarterly revenue for the first time, posting sales of $102.35 billion. This represents a 16% year-over-year increase.

Key growth drivers include:

• Google Cloud: The division reported a remaining performance obligation, or backlog, of $155 billion. Its revenue grew by 34% compared to the previous year.
• AI Adoption: Approximately 70% of Google Cloud customers are now using AI-powered products.
• Generative AI: Revenue from this specific segment surged by more than 200% year-over-year.

Concurrently, Alphabet has significantly raised its capital expenditure forecast for 2025. Planned investments are now set between $91 and $93 billion, focused on technical infrastructure like data centers, networks, storage—and now, with the Intersect deal, upstream energy supply.

Market Performance and Institutional Sentiment

The market has responded favorably to this strategic direction. Alphabet's stock has appreciated nearly 70% since the start of the year. Recently trading at $313.33, it hovered just below its 52-week high of $314.35. The substantial gap above its 200-day moving average of $193.57 highlights a sustained upward trend.

Institutional investor activity shows a mixed but engaged picture. Norges Bank established a new, larger position in the company, while Revisor Wealth Management reduced its holding by 16.4% in Q3. These movements indicate portfolio rebalancing among major investors, with the stock maintaining its relevance.

Analyst commentary remains predominantly positive. Zacks Investment Research featured Alphabet as a top pick for the week surrounding December 29, 2025. Morningstar raised its fair value estimate to $340, signaling further potential upside from current levels. The average price target among analysts sits at $315.90, with the most optimistic projections reaching $385.

Soaring AI Adoption and Strategic Partnerships

The operational foundation for this optimism is the explosive growth in AI usage. The Gemini assistant now boasts 650 million monthly active users, a significant jump from 450 million in July. Each new user strengthens the platform's network effect, provides valuable data, and enhances the overall appeal of the ecosystem for developers and partners.

Alphabet is also securing high-profile partnerships, including collaborations with the U.S. military and Apple. These alliances underscore the integration of its AI services into both critical infrastructure and mass-market applications. Furthermore, the autonomous driving subsidiary Waymo reported a tripling of paid rides in 2024, lending greater commercial credibility to Alphabet's "Other Bets" segment.

By combining rapidly scaling AI adoption, a substantial cloud backlog, and a new vertically integrated energy strategy, Alphabet is positioning itself as an end-to-end provider of computational power—from the kilowatt-hour and the chip to the end-user application. The key questions for the coming years will be how swiftly Intersect Power's projects can be brought online and to what extent Alphabet can convert this energy advantage into stable margins and accelerated AI growth.