Few stocks have had as successful a 2025 as Alphabet (GOOG 0.58%) has. It rose by around 65% for the year, and a performance like that likely won't be repeated in 2026. The question is, can we expect Alphabet's next year to be good enough to warrant owning it over other tech stocks, or the market in general?
Image source: Getty Images.
Alphabet answered a lot of questions in 2025
Entering 2025, Alphabet was an unloved stock. Three primary questions surrounded the company:
- Will it ever emerge as an artificial intelligence (AI) leader?
- Will Google Search maintain its dominance?
- Will Alphabet be broken up for operating an illegal monopoly?
All of those questions had serious implications on the perception of the stock, and it was widely believed that they wouldn't all have answers that were good for Alphabet. But that belief was wrong.
Its generative AI model, Gemini, has emerged as a top option in the space and is growing in popularity. Google Search added AI Overviews and AI Mode, providing users with both traditional search results and generative AI-powered answers. This kept Google Search at the top of its niche, and there's no longer a feeling that it will be disrupted. Lastly, though the judge in Alphabet's antitrust case did find it was acting as an illegal monopoly in the online search space and used that position to hinder competition, he chose not to require the company to spin off parts of itself. Although Alphabet has to make some business changes, the judge allowed it to keep operating mostly as it has been.
The positive resolution of all three of these questions kick-started an impressive rally in the stock. However, a lot of its gains for the year were set up by its previous undervaluation.
GOOGL PE Ratio (Forward) data by YCharts.
At their low point in April, Alphabet shares could be scooped up for less than 14 times forward earnings. Even after the court case was resolved in September, Alphabet's stock could be purchased for less than 20 times forward earnings. However, today, its stock trades at about 30 times forward earnings. That's around where other big tech stocks commonly trade. While that may mean it's more fairly priced, it likely limits the level of returns that investors will see in 2026. Don't expect another 65% rise.
How will Alphabet's stock do in 2026?
Shareholders will be looking for a few things from Alphabet in 2026. First, they'll want to see the continued dominance of Google Search and Gemini. Those businesses will need to keep excelling for the stock to perform well.
Next, investors will want to see Alphabet sell some of its Tensor Processing Units (TPUs) to external customers. So far, it has installed all of the custom AI accelerator chips it has produced in its own data centers, where it rents them to cloud customers and uses them to support its own AI workloads. But there have been reports that it is considering a deal to sell a large number of TPUs to Meta Platforms (META 3.83%). A deal like that could challenge Nvidia, with its (NVDA 1.56%) supremacy in graphics processing units. It would also open up a new revenue stream for the company, potentially allowing it to outperform its peers.
NASDAQ: GOOGL
Key Data Points
Google Cloud, Alphabet's cloud computing unit, will remain a key segment to watch. It has consistently grown its revenues by 30% or more year over year, making it one of Alphabet's fastest-growing divisions. Maintaining that type of pace will be key to the company's success in 2026.
Another factor that could boost Alphabet's stock performance in 2026 would be a SpaceX IPO. SpaceX is rumored to be targeting a valuation of over $1 trillion when it goes public, which would make Alphabet's roughly 7% stake in the business worth in the general vicinity of $70 billion. If it chooses to sell its stake, that could provide it with a cash infusion during a critical period of its AI buildout. However, there's no guarantee that SpaceX will go public next year, nor that it will achieve (or maintain) that valuation.
What Alphabet needs to do to have a successful 2026 is continue doing what it did in 2025. That's essentially what Wall Street thinks will happen. The analyst consensus projects 14% revenue growth in both 2025 and 2026. I think that growth in the mid-teens percentage range is a fair expectation. That would be greater than the long-term annualized performance of the S&P 500, which makes Alphabet a solid stock pick for 2026. However, I think some other big tech stocks (like Nvidia) could outperform it. But I also think Alphabet is a safer bet to deliver outperformance, and offers a nice balance of risk and reward for investors.
