AI’s Positive Impact on AMD and Alphabet

In recent quarters, AI has benefited both AMD and Alphabet significantly, and experts anticipate this trend will persist into 2026.

Profit growth for both companies is projected to be strong next year, which could lead to further increases in their stock prices.

According to Ryan Detrick, chief market strategist at the Carson Group, once a bull market lasts three years, it typically extends to an average of eight years. His confidence stems from the solid profit growth seen among tech firms. Additionally, HSBC analysts predict ongoing investment in AI infrastructure will drive the S&P 500 index to the 7,500 mark.

Tech stocks look particularly promising for impressive returns in 2025, as reflected in the 22% rise of the Nasdaq Composite index. Investors can take heart in the likelihood of continued gains in 2026 as the broader market rallies.

This combination of factors suggests it might be a favorable time to invest in tech stocks that have performed well recently, with expectations for further increases in 2026.

Advanced Micro Devices (AMD) is expected to deliver an 81% return by 2025. Its stock has outperformed the overall PHLX Semiconductor Division, which rose by 46%. The robust performance is attributed to AMD’s expansion in the AI data center market, with substantial demand for its graphics processing units (GPUs) and server processors.

AMD has established contracts with major companies like OpenAI, Oracle, and Microsoft, which are utilizing AI chips. This development is likely to accelerate data center revenue growth beginning next year. During a recent financial analysis meeting, AMD projected its data center revenue could grow annually by over 60% in the next three to five years, outpacing the 52% growth seen in the previous five years.

Moreover, AMD’s personal computing sector is thriving, with client processor revenue jumping 46% year-over-year to $2.8 billion, marking a record high. This surge is facilitated by the rise of AI-powered PCs. AMD is also gaining market share against Intel. Looking ahead to 2026, AI PC sales are expected to reach 143 million units, reflecting an 83% increase.

With these factors, AMD seems well-positioned for continued growth into 2026. Analysts predict significant bottom-line growth, potentially tripling to over 62%, equating to $6.44 per share. Given its forward earnings ratio of 35 times, which is lower than the tech sector average of 46 times, AMD’s stock remains an appealing investment.

If AMD meets the anticipated earnings next year, its stock could rise to around $296, indicating a possible 34% upside potential, alongside additional growth opportunities in 2026, making it a strategic buy right now.

Alphabet (NASDAQ: GOOG) has also been performing strongly in the market, surging 67% this year. The company’s growth is fueled by its AI investments, and the appreciation in the Magnificent Seven stocks aligns with this trend.

In the last quarter, Alphabet generated sales of $102.3 billion, reflecting a 16% increase from last year. Its revenue grew at an even more impressive 35% year-over-year, driven by advancements in its search and cloud services. The company notes that investments in AI tools, such as the Gemini app and AI-enhanced search features, are enhancing user engagement and paving the way for more pronounced growth.

For instance, Google’s AI mode in search is now utilized by 75 million users daily, which is quite remarkable for a feature launched this year. The AI summary option has also contributed to a rise in meaningful queries, improving user interaction.

Alphabet’s Cloud segment saw a 34% year-over-year revenue increase, with projections indicating even more robust growth from 2026 onwards as the cloud AI sector is estimated to quadruple in size, reaching $327 billion by the end of the forecast period.

The cloud provides clients with the resources to train, build, and deploy AI models and applications using various chips, including AMD and Nvidia, alongside its internal designs. Recently, Anthropic indicated it would utilize up to 1 million custom chips from Alphabet, and Meta Platforms may also become a customer for these AI chips.

Another thing to note is that Alphabet reported a $155 billion backlog in its cloud business, which grew by 46% quarter-over-quarter. This suggests that as demand for AI cloud services rises, Alphabet’s cloud division is likely to sustain healthy growth rates.

Overall, Alphabet’s strategy of developing a comprehensive AI service model, which includes cloud infrastructure and popular language models, positions it for substantial long-term expansion. Although hefty investments in AI may temporarily impact revenue, the larger outlook remains optimistic.

Furthermore, Alphabet’s stock, trading at a forward P/E of 29 times—below the tech sector average—could be a great option for investors.

Those considering investing in Alphabet stock should contemplate the findings from the Motley Fool Stock Advisor’s analyst team, which has identified several stocks with great potential for returns, though Alphabet isn’t among them.

Lastly, while past performance is no guarantee of future results, the potential for impressive returns from companies like Alphabet shows that there might be wise investments on the horizon.