Last year, I called Alphabet (GOOG +1.08%) (GOOGL +1.07%) a "once-in-a-decade opportunity." I believed the stock was severely undervalued and that it could catch up in the artificial intelligence race in 2025. I nailed that prediction, and if you invested in Alphabet stock at the start of 2025, you're up around 65%.
But it's 2026 now, and investing is more about future performance than past performance. So, where is Alphabet stock going to head next?
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Some of the tailwinds from Alphabet's rise are gone
One of the biggest tailwinds I pointed out in my 2025 prediction was Alphabet's undervaluation compared to the market (as measured by the S&P 500 (^GSPC +0.59%)) and other big tech stocks. There were a few factors contributing to Alphabet's undervaluation, namely its position in the generative AI landscape. However, Alphabet emerged as a leader throughout 2025, and that undervaluation is no longer the case.
Data by YCharts.
Now, Alphabet trades for 30 times forward earnings, about the same price as other big tech peers.
As a result, I don't think Alphabet will be able to deliver the same level of impressive returns in 2026 as it did in 2025, partly because the stock's valuation would get too expensive. However, I still think it's a great investment opportunity.
Alphabet's AI dominance is still emerging
Alphabet entered 2025 with investor perceptions that it was an AI laggard, but now it's viewed as an AI leader. Gemini has quickly emerged as a top option for those who use AI regularly, and investors are taking note. There's still plenty of room for its generative AI dominance to expand, so I think Alphabet has plenty of ground to gain in this area. Furthermore, investors haven't even touched the capabilities of generative AI, and some features that could be unveiled in 2026 may be real game-changers.
Another factor why I listed Alphabet as a once-in-a-decade opportunity was its quantum computing research. Alphabet made further progress in 2025 in this area, although investors likely won't see its true impact on the business until at least 2030. There is still quantum computing-related upside to Alphabet's stock, which makes the stock worth hanging on to.
For 2026, I think Alphabet will continue to beat the market, but it won't be by a monstrous amount like it was in 2025. As a result, it's still a great stock to hold on to, and if you don't own any shares, it's not too late to buy now.
