One of the best-positioned artificial intelligence (AI) stocks for several years is undoubtedly Alphabet (GOOGL +0.90%) (GOOG +0.85%). The stock has had a strong year, but its momentum could just be beginning.
Let's look at why the stock could deliver market-beating returns through 2030.
Image source: Getty Images.
Alphabet's flywheel advantage
Heading into this year, Alphabet was pegged by the investment community as a probable AI loser. For the first time in a long time, its core Google search business was facing a big potential competitive threat with AI. Investors believed that chatbots, like those from OpenAI and Anthropic, could displace search, while AI-powered search from the likes of Perplexity added further competition.
However, Alphabet was able to flip the script in 2025. It was able to raise the level of its Gemini large language model (LLM) to become one of the best AI models available. Meanwhile, it also integrated Gemini throughout its products, including Google search. It started with AI-powered features like AI Overviews and new multimodal ways to search, such as Circle to Search and Lens, that went beyond typing in search keywords. Then it introduced an entire AI Mode built right into Google search where users could easily toggle between traditional search and AI chatbot answers.
This ultimately creates a more frictionless experience that doesn't ask people to change what they are accustomed to doing. That's a powerful advantage that is only amplified by the distribution edge that Alphabet holds. Google search is already the default search engine on almost every device on the planet, outside of China, where it does not operate. The company owns both the world's most popular smartphone operating system and web browser, each of which has a more than 70% market share. Meanwhile, it has a search revenue-sharing deal with Apple to be the default search engine on its devices, covering much of the rest of the population that doesn't use Chrome or Android.
Instead of seeing its search revenue shrink from increased competition, it has instead started to accelerate. As the company taps into its vast ad network and begins to find ways to monetize AI even more, this growth should only continue to accelerate.
However, Alphabet's biggest weapon is its custom AI chips called Tensor Processing Units (TPUs). The company developed these custom chips more than a decade ago, and they help run most of Alphabet's internal workloads. As an ASIC (application-specific integrated circuit), they are preprogrammed to specifically handle tasks optimized for Google's TensorFlow framework and more recently, other frameworks, such as JAX and PyTorch. (That last part is actually important, as it opens the door for it to sell TPUs directly to companies like Anthropic, which uses PyTorch.) Notably, though, it's more than just the hardware, as Alphabet has also designed and integrated its software (like its XLA compilers) around these chips.
As such, they can outperform general purpose graphics processing units (GPUs) at these specific tasks, while also being more energy efficient. This gives Alphabet a huge structural cost advantage against competitors that rely almost solely on Nvidia's expensive GPUs. Not only are its chips cheaper, but they are also more cost effective to use, which will only become more important as more people use AI and total inference costs rise.
Having both less expensive training and inference costs creates a virtuous cycle for Alphabet. It's getting more bang for its buck with its spending on training, which makes its models better, which gets more people to adopt Gemini, which lets it funnel more money to make its AI models better, and so on. Meanwhile, it also gives its cloud computing unit, Google Cloud, a big edge, as it can also offer customers more cost-effective options than training and running inference on Nvidia-based servers. This should allow it to capture higher gross margins and have a higher return on investment (ROI) on its capital expenditures (capex) spending than competitors.
NASDAQ: GOOGL
Key Data Points
Why the stock will outperform
Alphabet is just starting to see the rewards of the flywheel effect it has created, and the benefits should just widen over time. Amazon and Microsoft have developed their own custom chips, but they are not yet at the level of TPUs, and it will take many years to catch up to have the same level of software-to-hardware integration. Meanwhile, OpenAI's custom chip efforts are still in the development stage, and it doesn't have the same level of distribution or ad network as Alphabet.
Alphabet is the only company with both world class AI chips and models, which sets it up to be one of the biggest AI winners and for its stock to have market-beating returns in the years ahead.
