The market continues to surge higher, driven by leading technology stocks. One steady company always in the mix is Alphabet (GOOG 1.69%)(GOOGL 1.66%), the parent company of Google. Over the past two decades, Alphabet has delivered returns of almost 19% annually.
This year, the growth stock is exceeding its own high standard, returning 67%, while the S&P 500 has returned 16.5%. Alphabet is climbing new heights as it emerges as a top player in the artificial intelligence (AI) arms race. With its Tensor Processing Units, Alphabet has emerged as a vertically integrated business across the AI value chain. Here's why it can continue to deliver for investors.
Image source: Getty Images.
Alphabet has more clarity for its business moving forward
Coming into this year, Alphabet's business was still facing a couple of challenges. For one, regulators had launched antitrust investigations into Google's business practices, with a focus on its dominance in online search and advertising. At one point, many believed the Department of Justice could require Google to sell its Chrome browser to address monopoly concerns.
In a major ruling earlier this year, a federal judge decided that Google would not have to divest Chrome. Instead, the court imposed restrictions on exclusive contracts and required Google to share certain search data with competitors, removing a major source of uncertainty for the company.
Another risk people were concerned about was its search business. Since OpenAI's ChatGPT took the world by storm three years ago, many have expressed concerns that large language models (LLMs) will begin to displace Google Search. Those concerns have proven overblown, as Alphabet has taken steps to integrate AI into its search engine.
The company has integrated AI Overviews, powered by its Gemini LLM. The company noted that monetization trends are consistent even after integrating AI Overviews. In the third quarter, Google Search and other revenue grew 15% to $56.6 billion, as the company leveraged its own LLMs to generate more queries, with adoption higher among younger generations.
Going forward, Google has new AI products, such as AI MAX, which can help the company monetize further by opening up billions of new search queries. This tool enables customers to use AI to manage ad campaigns across Google Search, leveraging billions of searches and real-time user signals to match ads with people.
NASDAQ: GOOGL
Key Data Points
Alphabet's full-stack artificial intelligence platform
One thing that excites me about Alphabet is its full-stack approach to artificial intelligence. As part of this approach, Alphabet is vertically integrated across various aspects, including AI infrastructure such as data centers and the manufacturing of its own Tensor Processing Units (TPUs) to better process AI calculations quickly.
It also has its own LLM model, Gemini, which powers its AI overviews. Finally, it integrates these models into its other suite of products, including Google Cloud and Google Workspace.
Another advantage Alphabet has over other technology companies is its TPUs. These are application-specific integrated circuits (ASICs) that Alphabet has custom-designed specifically for neural network machine learning. They are designed to maximize performance and reduce costs across AI workloads, including training, fine-tuning, and inference.
This has attracted major AI players, like Anthropic, which plans to access up to 1 million TPUs. In November, Alphabet announced plans to sell its chips to Meta Platforms, putting it in direct competition with Nvidia. This move capitalizes on strong demand, as evidenced by the significant growth of the Google Cloud backlog.
In the third quarter, Google Cloud revenue increased 34% year over year to $15.2 billion. The pace of large deals is accelerating, with Google Cloud signing more deals exceeding $1 billion through the first nine months of 2025 than it did in the previous two years combined. Meanwhile, its cloud backlog increased 82% from last year to $155 billion.
Alphabet's AI advantage
Hyperscalers continue to invest heavily in AI, and Alphabet is emerging as a powerful player in the space. Its business already generates stable cash flow thanks to its dominance in online advertising, Google search, and YouTube. Meanwhile, the growth of its cloud services segment shows incredibly strong demand for enterprise AI.
Alphabet has done an excellent job investing across the AI value chain, including data center infrastructure, TPUs, and LLMs, while integrating these capabilities into its already successful products. Given its role in the AI ecosystem, Alphabet is well-positioned and remains an excellent growth stock to hold long-term.
