On Tuesday, Alphabet (GOOG 1.68%) (GOOGL 1.66%) hit a new all-time high as its market capitalization surpassed a $4 trillion. Last year, Microsoft and Apple each briefly joined the $4 trillion club. But at the time of this writing, Alphabet and Nvidia are the only two members.
Alphabet is now up a mind-numbing 136% from its 52-week low. In August, when Alphabet's market cap was hovering around $2.5 trillion, I predicted that it would surpass $3 trillion before the end of 2027. Here's why Alphabet exceeded my expectations, and why I now think it has room to run to $5 trillion before the end of next year.
Image source: Alphabet.
Blowing past $3 trillion
My previous Alphabet prediction was heavily based on value rather than growth. In June, Alphabet was the only "Magnificent Seven" stock that was cheaper than the S&P 500 based on forward earnings estimates. Alphabet also had a lower market cap than Nvidia, Microsoft, Apple, and Amazon, despite being the most profitable S&P 500 company. The market was valuing Alphabet's earnings as lower quality than those of its big tech peers under the assumption that tools like OpenAI's ChatGPT were going to revolutionize the way people search for and interact with information, and that Google Search would lose traffic and ad revenues in consequence.
My argument was that Alphabet shouldn't be treated like a legacy tech giant that's past its prime because it has a highly diversified asset portfolio that includes not just cash-cow Google Search, but also YouTube, Google Cloud, Android, Google Ads, devices, and "other bets" like self-driving car subsidiary Waymo. Additionally, Google's DeepMind-powered Gemini model was achieving success by enhancing Google Search with AI Overviews and gaining traction as a standalone app.
However, my prior prediction for Alphabet to surpass $3 trillion in market cap by 2027 was mainly centered on what Alphabet had already built. It wasn't factoring in accelerated growth from Gemini.
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Key Data Points
The Gemini effect
Gemini is the core reason why Alphabet has added $1.5 trillion to its market cap in less than five months and why it could advance further. On Nov. 18, Alphabet launched Gemini 3, an ultra-powerful chatbot that rivals ChatGPT and Claude, and which received widespread favorable reviews. Gemini 3 was a monumental breakthrough for Alphabet because it demonstrated the company's continued leadership in search. Gemini's success is partially responsible for the recent sell-off in Microsoft, which is heavily invested in OpenAI and uses its large language models to power Copilot. The contrast between how the two tech giants' shares have performed over the last three months is obvious.
But it's not just Gemini that has investors excited about Alphabet. The company's custom-made Tensor Processing Units (TPUs) -- which it has been designing in partnership with Broadcom -- offer a solid alternative to the graphics processing units (GPUs) sold by Nvidia and Advanced Micro Devices. Because TPUs are application-specific integrated circuits, they are designed to handle precisely the types of AI workloads they will see. By sacrificing some flexibility, they deliver cost advantages compared to GPUs in data center applications like AI training and inference. Still, GPUs remain the parallel-processing workhorses of AI data centers.
Thus far, Alphabet has been installing its TPUs in its own data centers, but may begin selling them to other hyperscalers as well, which would create an additional AI-fueled revenue stream.
The road to $5 trillion
With a price-to-earnings ratio of 33.4, Alphabet is no longer cheap. But it's definitely fairly valued based on the growth potential of Gemini, YouTube, and Google Cloud.
Since its valuation is reasonable, it would make sense for Alphabet's stock price to increase by its earnings growth rate. If Alphabet grows earnings by 10% to 15% annually over the next two years -- and the stock price mirrors that growth rate -- that could push its market cap above $5 trillion.
All told, Alphabet is a solid stock that investors can buy today and build their portfolios around, even while it trades near its all-time high.
