Very few stocks can boast a market capitalization of over $1 trillion. But an even smaller, more elite group can boast market caps over $3 trillion. A decade ago, many analysts and investors would have laughed at the idea of a company surging past a $3 trillion market value. And even now, only the cream of the crop has elevated to this level, largely driven by extreme exuberance around artificial intelligence.
The three that have surpassed a $3 trillion market cap are Nvidia, Microsoft, and Apple. But another AI hyperscaler will likely soon join them and has even surpassed a $3 trillion market cap for brief periods earlier this year.
Emerging after a busy year
No company has had a quiet year, due to the market scare in April from tariffs. But Alphabet (GOOG 0.62%) (GOOGL 0.46%) has had to overcome several hurdles before being able to rise nearly 27% this year to a roughly $2.9 trillion market cap (as of Oct. 9).
Image source: Alphabet.
The big one involved the U.S. Department of Justice's lawsuit against the tech conglomerate. It accused Google of monopolistic practices in search and digital advertising that made the landscape unfair for competitors, which therefore forced clients to use its products in a way that gave Google extreme pricing power. At the end of 2024, a federal judge sided with the DOJ and ruled that Google did indeed employ monopolistic practices to maintain its dominance in search.
The DOJ then asked the judge to force Google to divest Chrome, which plays a big role in driving Google's search business that contributes over half of Alphabet's revenue. Recently, the judge issued a sentence that many investors believed to be quite benign. Not only did the judge let Google keep Chrome, but also essentially said it could keep paying companies like Apple to make Google their default search engine.
Interestingly, part of the reason the judge failed to make Google divest Chrome is due to the rise of artificial intelligence chatbots like ChatGPT, which have made the search space far more competitive than it once was. This actually ties into another hurdle Google is facing related to the future of search. Users have flocked to chatbots like ChatGPT and Perplexity for their search needs, leaving many investors wondering what the search landscape will look like going forward.
However, Google has made progress in integrating AI capabilities to its search engine with features like Gemini overviews, which pop up at the top of many search queries and provide answers to questions in a similar manner to chatbots.
Analysts at HSBC recently initiated coverage on Alphabet with a buy rating, specifically citing the search giant's progress in AI with Gemini overviews. The analysts said they expect AI overviews and Google's AI mode, which seeks to create more of a conversational AI search experience, should help the conglomerate maintain a 90% market share of the traditional search market.
An AI pullback is possible, but Alphabet will reach $3 trillion sooner than later
Investors are constantly speculating over what inning we are in of the AI game, but nobody really knows. I don't think that AI is a fad and it will likely be impacting our lives for decades to come. But the path may not be linear and I would not be surprised to see a pullback in the stock market or correction at some point.
Regardless, Alphabet already hit a $3 trillion market cap in September and I think it's only a matter of time before that happens again and Alphabet stays above that level permanently. The stock trades at about 24 times forward earnings, which is not exactly cheap, but not crazy compared to some of the other hot AI stocks out there.
Alphabet also has several fast-growing and exciting businesses aside from its search business, including its autonomous driving division Waymo, its content powerhouse YouTube, and its cloud business, just to name some of the big ones. These should continue to power the stock higher over time.
