Since the surge in artificial intelligence (AI) adoption triggered by the release of ChatGPT, Nvidia has emerged as one of the standout performers in this bullish market phase. The company's shares have soared by over 1,000%, driven predominantly by heightened investment in AI infrastructure where Nvidia's graphics processing units (GPUs) have become the industry standard for training advanced language models.
Nvidia, currently approaching the status of the globe's largest company with an approximate market capitalization of $4.5 trillion, still holds strong growth expectations from analysts. The prevailing median price targets suggest a potential 30% increase in Nvidia's stock price, which would elevate the company's valuation to an estimated $6 trillion. However, corporate developments within Alphabet indicate a competitive challenge that could see it outperform Nvidia in 2026.
Growing Momentum in Alphabet's AI Portfolio
Throughout 2025, Alphabet has made marked progress in its AI capabilities, translating this into robust financial metrics poised to continue into the next year. Specifically, Google Cloud—a crucial segment within Alphabet's operations—demonstrated an accelerated revenue growth rate of 34% in the last quarter accompanied by an expansion of operating margins up to 24%. This trend is supported by a considerable backlog reported at $155 billion by the end of the third quarter, reflecting a 46% year-over-year increase.
A notable driver behind this growth is the rising demand for Alphabet's custom-designed Tensor Processing Units (TPUs). These AI acceleration chips provide a cost-effective alternative to Nvidia's GPUs for both AI training and inference tasks. Industry adoption of TPUs appears on the rise, with Anthropic scheduled to deploy these units for specific workloads in 2026 and reports indicating ongoing talks with Meta Platforms for potential integration, including adaptation of the popular AI framework PyTorch for TPU compatibility. This competitive hardware landscape, along with further AI accelerators emerging in the market, should catalyze Google Cloud's expansion and margin improvements as it progresses.
Advancements in Language Models Fuel Alphabet's AI Leadership
Alphabet's contributions to large language model (LLM) development remain highly competitive. The company's release of Gemini 3.0 in November outperformed contemporaneous models from Anthropic and OpenAI on multiple benchmark assessments. This launch prompted an exceptional response within the industry, with OpenAI's CEO acknowledging a 'code red' situation due to Gemini 3.0's capabilities surpassing those of GPT 5.1.
Gemini's performance has also significantly influenced consumer adoption, evidenced by the application’s monthly active user base reaching 650 million as of November. Looking forward, Apple reportedly plans to incorporate Gemini into new AI-enhanced Siri functionalities starting in spring, entailing a $1 billion annual licensing agreement with Alphabet. Since Apple intends to operate the model on its own infrastructure, this arrangement should contribute nearly fully to Alphabet’s profitability.
Integrating AI for Core Business Enhancement
Beyond innovation for external clients, Alphabet benefits strategically from applying its AI developments internally. The integration of LLM technologies and machine learning algorithms strengthens its foundational services such as Google Search and YouTube, both of which remain substantial revenue generators.
Features leveraging AI, including AI Overviews and AI Mode, have diversified user search behavior, increasing query types and volume. Remarkably, monetization rates for these AI-fueled searches approximate those of traditional queries, culminating in net revenue gains. Ongoing efforts to reduce the cost of producing AI Overviews have improved profitability, contributing to Google Search revenue growth of 15% in the third quarter.
YouTube also exhibited a 15% revenue increase in the latest quarter, supported by AI enhancements that facilitate video production and enrich viewer interactions, such as video editing tools, thumbnail generation, and identification of shoppable products within content.
Progress in Emerging Ventures: Waymo
Alphabet's self-driving vehicle initiative, Waymo, under the Other Bets segment, has shown substantial operational scale-up. The robotaxi service completed 14 million trips in 2025, more than tripling the prior year’s volume. The company aims to reach a milestone of 1 million rides weekly by the close of 2026, expanding its operations into 20 new metropolitan areas. As this segment grows, it could become a meaningful contributor to Alphabet's overall revenue.
Valuation and Comparative Outlook
With its broad AI engagement across hardware, software, and services, Alphabet represents a diversified growth entity currently trading at a forward price-to-earnings multiple below 30. In contrast, Nvidia is valued at a premium exceeding 40 times forward earnings.
Alphabet's anticipated trajectory includes ongoing earnings acceleration driven by its scalable cloud infrastructure and expanding operating margins. The company's substantial cash generation capacity affords it the flexibility to enhance share repurchase activities, which can further boost earnings per share. These factors collectively suggest that Alphabet's valuation may offer greater investment value relative to Nvidia’s high expectations.
Conversely, Nvidia could face challenges in extending its rapid gains into 2026 as competition from Google’s TPUs, evolving GPUs, and other emerging AI accelerators intensifies, potentially affecting its dominant market position. Given these dynamics, Alphabet appears positioned to deliver superior stock performance in the forthcoming year.