Alphabet has a complete AI stack and owns almost all components of the AI ecosystem.
Its impressive growth has a long way to go as AI adoption spreads.
The stock’s very reasonable valuation leaves plenty of room to beat Nvidia’s valuation in time.
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The current artificial intelligence (AI) investment cycle, in which companies are investing billions of dollars in data centers and other infrastructure, has boosted the leader in AI chips. NVIDIA(NASDAQ: NVDA) to its position as the largest company in the world by market capitalization.
It’s a remarkable feat, and it took the share price to rise almost 1,000% in just three years to achieve it. But it is difficult to stay on top of the mountain and a formidable challenge lies ahead. Initially, investors thought that artificial intelligence would threaten the tech giant. Alphabet(NASDAQ:GOOGL)(NASDAQ:GOOG).
However, Google’s parent company seized the opportunity and became arguably the most well-rounded AI stock on the market today.
So this fool is saying it now: Alphabet, not Nvidia, will be the largest company in the world in 2026. I make my case below.
Image source: Getty Images.
The AI landscape is still in its early stages. A lot will happen over the next decade or two, so it’s not easy to make many predictions with much confidence. That said, Alphabet might have the strongest argument to play a leadership role in the future of AI.
It would not be an exaggeration to call Alphabet the most prominent Internet company in the world. It is known for its dominant Google search engine, but in reality, the Alphabet empire casts a much longer shadow. Its main assets include:
YouTube, the largest streaming platform.
Google Chrome, a leading web browser.
Android, a leading operating software for smartphones.
Google Workspace, a collection of Internet applications with more than 3 billion users.
These assets provide Alphabet with key information and data on the majority of the world’s web users, a crucial resource for developing and training its AI models. Additionally, Alphabet’s Google Cloud is the world’s third-largest cloud computing services platform, and the company has created custom AI chips, called Tensor Processing Units (TPUs), for its data centers.
In other words, Alphabet possesses a comprehensive AI ecosystem that gives it a significant competitive advantage over most other AI companies, which typically only possess parts of an ecosystem.
Some AI hyperscalers have had to take on substantial debt to finance their data center investments. Not Alphabet, which has primarily funded its investments with profits thanks to its various established businesses that generate cash flow like few companies on the planet can.
Additionally, Alphabet’s core businesses continue to thrive. Digital advertising revenue through Google and YouTube grew approximately 15% year over year in the third quarter. Meanwhile, Google Cloud revenue increased 34% as the use of AI drives cloud demand.
Assuming AI adoption continues to spread throughout society, especially among consumers using AI applications, that growth doesn’t seem likely to slow any time soon. That’s before considering Alphabet’s Waymo subsidiary, which continues to expand into new markets and is now seeking funding to accelerate its growth efforts.
All in all, Wall Street analysts estimate that Alphabet will grow earnings at an annualized rate of 16% over the next three to five years.
Nvidia certainly has strong growth prospects as well, but some of its customers, such as OpenAI and OracleThey face scrutiny over how they will fund their massive AI commitments. In other words, it appears that Nvidia’s growth is more fragile because it depends on a small number of customers. For Alphabet, AI adds additional benefits to its established digital and cloud advertising businesses.
Currently, Nvidia’s market capitalization of $4.3 trillion is only 16% larger than Alphabet’s. Alphabet currently trades at a P/E ratio of 29, using full-year earnings estimates, a reasonable price for high-level annualized earnings growth, especially for a world-class company with multiple highly profitable businesses.
That leaves room for the stock to continue rising through 2026 if Alphabet’s businesses continue to perform well. If confidence in Nvidia’s growth drops, I could see Alphabet overtaking it.
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Justin Pope has positions at Alphabet. The Motley Fool has positions and recommends Alphabet, Nvidia and Oracle. The Motley Fool has a disclosure policy.
Prediction: This will be the world’s largest company by the end of 2026 (hint: it’s not Nvidia) was originally published by The Motley Fool
