There’s a lot of room for potential growth here.
The tech sector, particularly the so-called Magnificent Seven—which includes major players like Alphabet, Amazon, Apple, Microsoft, Meta Platforms, Nvidia, and Tesla—has had a challenging year. Only three of these companies have performed well against the S&P 500 this year, leaving four of them trailing behind. Notably, Alphabet stands out; its stock has soared by 63%, significantly ahead of Nvidia’s 37%. But, one can’t help but wonder—will Alphabet’s stock still be desirable by 2026?
Why Alphabet Outperformed This Year
Interestingly, Alphabet didn’t kick off the year on a strong note. However, two key factors contributed to its turnaround. First, the company released impressive financial results, largely driven by its advancements in cloud computing and artificial intelligence (AI). Despite stiff competition from AI chatbots, Alphabet has maintained its lead in search technology while providing vital AI services via the cloud.
Secondly, Alphabet scored a significant legal win or, perhaps more accurately, navigated a legal setback that felt more like a win. It was waiting for a court’s decision on an antitrust case brought by the U.S. Department of Justice, claiming monopolistic practices in internet search. Thankfully for Alphabet, it escaped the worst-case scenario of having to sell its Google Chrome browser—a crucial part of its ad business. With this major hurdle crossed, Alphabet has a renewed sense of stability.
Future Predictions
Another aspect that has helped Alphabet surpass its peers is its more reasonable valuation when looking at traditional metrics. This could indicate positive prospects for the medium term.
One of the standout growth drivers for Alphabet in the next five years is likely to be AI. The company isn’t just implementing AI through cloud products or Gemini 3 subscriptions; it’s integrating AI tools throughout its operations to boost profits. They’ve improved their search algorithms and enhanced user experience by leveraging AI technologies—all of which lead to increased search volume and, of course, higher ad revenue.
Moreover, Alphabet employs AI on platforms like YouTube to suggest content, enhancing user interaction. Besides AI, the Google Cloud division is set to foster notable revenue growth in the coming years. Although it operates on thinner margins than advertising, its rapid expansion shows few signs of slowing down. In fact, Google Cloud’s backlog has jumped to $155 billion, reflecting a 46% increase since the previous quarter.
Alphabet has also indicated that its cloud operating margins are improving, and they’re onboarding new customers at an accelerating rate—despite stiff competition from Amazon and Microsoft, both of whom have larger market shares.
From my perspective, Alphabet’s stock appears undervalued given the strength of its ad and cloud sectors. With other promising revenue sources, such as subscription growth, Alphabet seems poised for a favorable year ahead. It might not clinch the title of best-performing Magnificent Seven stock by 2026, but it seems likely to outperform the broader market over the next five years.
