The ongoing artificial intelligence (AI) investment cycle, where companies are investing billions of dollars in data centers and other infrastructure, has propelled AI chip leader Nvidia (NVDA 1.53%) to its position as the world's largest company by market capitalization.
It's a remarkable feat, and it took the stock price rising nearly 1,000% in just three years to accomplish it. But it's difficult to stay atop the mountain, and a formidable challenger is looming. Initially, investors thought artificial intelligence would threaten tech giant Alphabet (GOOGL 1.66%)(GOOG 1.68%).
However, Google's parent company has seized the opportunity and become arguably the most complete AI stock on the market today.
So, this Fool is calling it now: Alphabet, not Nvidia, will be the world's largest company in 2026. I state my case below.
Image source: Getty Images.
Envious competitive positioning as the full-stack AI player
The AI landscape is still in its early chapters. A lot will happen over the next decade or two, so it's not easy to make many predictions with much confidence. That said, Alphabet could have the strongest argument for a leading role in AI's future.
It wouldn't be a stretch to call Alphabet the world's most prominent internet company. It's known for its dominant Google search engine, but in reality, Alphabet's empire casts a far longer shadow. Its chief assets include:
- YouTube, the largest streaming platform.
- Google Chrome, a leading web browser.
- Android, a leading smartphone operating software.
- Google Workspace, a collection of internet apps with over 3 billion users.
These assets provide Alphabet with key insights and data on most of the world's web users, a crucial resource for developing and training its AI models. Additionally, Alphabet's Google Cloud is the world's third-largest cloud computing services platform, and the company has created custom AI chips, called Tensor Processing Units (TPUs), for its data centers.
In other words, Alphabet owns a comprehensive AI ecosystem that gives it a significant competitive advantage over most other AI companies, which typically own only pieces of an ecosystem.
Plenty of growth still to come
Some AI hyperscalers have had to take on substantial debt to fund their data center investments. Not Alphabet, which has primarily funded its investments with profits thanks to its various established businesses that generate cash flow like few companies on the planet can.
Furthermore, Alphabet's core businesses continue to thrive. Revenue from digital advertising through Google and YouTube grew by roughly 15% year over year in the third quarter. Meanwhile, Google Cloud revenue increased by 34% as AI usage drives cloud demand.
NASDAQ: GOOGL
Key Data Points
Assuming AI adoption continues to spread throughout society, especially among consumers using AI apps, that growth doesn't seem likely to slow down anytime soon. That's before considering Alphabet's Waymo subsidiary, which continues to expand into new markets and is now seeking funding to accelerate its growth efforts.
All in all, Wall Street analysts estimate Alphabet will grow its earnings at an annualized rate of 16% over the next three to five years.
The stock's valuation is reasonable and has room to run
Nvidia certainly has strong growth prospects as well, but some of its customers, such as OpenAI and Oracle, are facing scrutiny for how they will fund their massive AI commitments. In other words, it appears that Nvidia's growth is more fragile because it relies on a small number of customers. For Alphabet, AI adds additional upside to its established cloud and digital ads businesses.
Currently, Nvidia's market cap of $4.3 trillion is just 16% higher than Alphabet's. Alphabet currently trades at a price-to-earnings ratio of 29, using full-year earnings estimates, a reasonable price tag for high-teens annualized earnings growth, especially for a world-class company with multiple highly profitable businesses.
That leaves room for the stock to continue higher through 2026 if Alphabet's businesses continue to perform well. If confidence in Nvidia's growth dips, I could see Alphabet overtaking it.
