2025 is nearly over, and despite the strong year, many investors are biting their fingernails over the prospects for 2026. Will the artificial intelligence (AI) boom continue despite talks of a bubble and debt investors recently balking at funding large-scale data centers? Whom will President Donald Trump pick as the new Federal Reserve chair, and will the new nominee be independent?
Short-term concerns always dominate headlines and investors' mindsets in the moment, but real long-term outperformance comes from taking a broader mindset and looking at the big picture.
Assuming the AI buildout continues apace and AI usage increases over the next several years -- and there's no evidence AI adoption is slowing at all -- these three artificial intelligence stocks still look like they have upside. In fact, there's a case for 50% upside for each in 2026.
NASDAQ: MSFT
Key Data Points
1. Microsoft
Microsoft (MSFT 0.73%) is up a solid 15% year to date in 2025 but has pulled back in recent months. Investors have grown nervous over OpenAI's technical moat and ability to fund massive spending commitments. That's important for Microsoft, which is both a 27% owner of OpenAI and a cloud provider for $250 billion of OpenAI cloud computing commitments -- a result of the 2025 negotiations by which OpenAI converted into a for-profit company.
That ownership and cloud pipeline would be highly bullish for Microsoft, but doubt has crept in regarding OpenAI's lead in generative AI in recent months. Rival Anthropic has shown significant enterprise growth, and Alphabet (GOOG 1.68%) (GOOGL 1.66%) released its impressive Gemini 3 model in November.
Still, the fear may be misplaced. It doesn't seem likely that the AI revolution would be dominated by a single model builder, but rather by a cohort of winners in an oligopoly. That's how both the semiconductor and cloud computing sectors have evolved. The AI large language model (LLM) market will likely follow a similar path.
After all, Alphabet was regarded as a loser in the AI race as recently as this year, only to retake the lead. OpenAI is certainly not going away, and this week's investment in OpenAI by Amazon appears to indicate that at least some astute executives and investors still believe in the company.
Meanwhile, Morgan Stanley sell-side analyst Keith Weiss just upgraded Microsoft stock, giving it a $650 price target, good for 35% upside from the current price. His analysis and conversations with management indicated that Azure AI demand is stronger than initially thought and that Azure AI's gross margins can expand with scale as more revenue is generated over the next two years. Furthermore, Weiss noted that his estimates don't even contemplate the full OpenAI contract, which could lead to further upside.
2026 should also see the introduction of Microsoft's next-generation AI chip, named Braga. According to reports this past summer, the chip was initially planned for 2025, but a redesign pushed back its introduction by six months. If Microsoft can develop an impressive in-house-designed chip, as Alphabet and Amazon have, that could lead to even more optimism.
2. Alphabet
Speaking of Alphabet, it would definitely be possible for both Microsoft and Alphabet to appreciate 50% in 2026. While Alphabet has had the best year of the "Magnificent Seven" stocks, up 62% on the year, Alphabet also entered the year as the cheapest of the bunch. In fact, despite this year's rise, it's still the second-cheapest of the bunch.
Coming into the year, investors were nervous that AI chatbots could disrupt Alphabet's Search business. However, that doesn't seem to be happening. Search paid clicks grew by 2%, 4%, and 7% in the first, second, and third quarters, respectively, showing a reacceleration after Alphabet introduced AI Mode into Search in May.
Image source: Getty Images.
With the November release of Gemini 3, Alphabet has seemingly taken the lead for the moment in the AI race across several benchmarks. What's even better is that Gemini 3 was trained on Alphabet's homegrown Tensor Processing Units (TPUs). Following the Gemini release, other major companies are now looking to buy or lease TPUs from Alphabet or its cloud unit, Google Cloud.
Even Alphabet rival Meta Platforms is reportedly considering using TPUs, according to late-November press reports. And just last Friday, Reuters reported a massive cloud deal worth over $10 billion between cybersecurity giant Palo Alto Networks and Google Cloud.
That all bodes very well for Google Cloud, which has been an incredibly underrated part of Alphabet's business. Google Cloud has now reached scale, with a $60 billion revenue run-rate and an almost $5 billion operating profit run-rate as of the last quarter. Growth accelerated by 34% for that business in Q3, accompanied by margin expansion.
So not only could the Cloud unit become a second major profit center beyond ad revenue, but 2026 could also bring exciting developments for Waymo. Waymo is now delivering over 1 million autonomous rides per month, with a significant lead over competitors in scaling. Next year could bring about more disclosure around Waymo's revenue or valuation, which could add yet another major business to Alphabet's expanding empire.
3. Intel
Intel (INTC 5.68%) has had an even better year than Alphabet or Microsoft, up 83.6% on the year thus far. Of course, Intel was trading at a practically distressed price heading into 2025, below its book value and without a CEO. And despite the 2025 surge, its market cap is still far, far lower than all the supposed AI winners of today.
Meanwhile, 2026 is shaping up to be an exciting year. New CEO Lip-Bu Tan, who joined the company in March, will begin to make his presence felt more noticeably. The all-important 18A node -- the node at which Intel predicts it will either equal competitors or regain its technology leadership in the industry -- will begin to deliver product. 18A has just begun high-volume manufacturing this quarter, with the first 18A product, Panther Lake, set to enter the laptop market in January.
Success on 18A in the form of better revenue and margins could yield external customer wins for future nodes 18AP and 14A. Already, technology pundits are reporting that major companies such as Apple, Nvidia, and even Intel rival Advanced Micro Devices are looking to potentially use the 14A node for their server central processing units (CPUs), according to analysts for China research firm GF Securities.
If an external customer were to commit to Intel's 14A node, which is expected to be released in 2027 or 2028, there could be confirmation of the customer win during 2026. After all, there has already been a flurry of positive reports on 14A technology and the adoption of Intel's EMIB packaging technology over the past month or so.
If investors come to believe that Intel has pulled even or ahead in terms of process technology, financial results improve with 18A manufacturing, and/or Intel announces a significant external 18AP or 14A customer win for its foundry, there is still considerable upside left in the stock.
