Alphabet Emerges as Top Performer After a Transformative Year

In a remarkable turnaround, Alphabet Inc., the parent company of Google, delivered the strongest performance among the so-called "Magnificent Seven" tech stocks in 2025. Its shares surged by nearly 65%, outpacing even Nvidia and solidifying its position as the leading giant in the sector. This outcome, which seemed improbable just a year ago, marks a decisive shift as the company has successfully addressed prior market skepticism regarding its artificial intelligence roadmap and now commands a valuation premium.

The beginning of 2025 saw Alphabet's stock trading at depressed valuations, with investors questioning Google's ability to compete against agile AI startups like OpenAI. The company's response was unequivocal. With an annual gain of 65%, Alphabet recorded its second-best yearly performance in corporate history. During November, the stock achieved a record high of $328.83.

This impressive rally was fueled by several key factors:

• A substantial 33.5% year-over-year revenue increase for Google Cloud in the third quarter, reaching $15.16 billion.
• A 46% expansion of the cloud backlog, which now stands at $155 billion.
• Successful revenue diversification through its subscription services, with 300 million paying users across YouTube and Google One.

Strategic Advances in AI and Hardware

The November launch of Gemini 3 served as a powerful statement of capability. The AI model demonstrated significant strength in reasoning, coding, and image generation, with reports suggesting its performance prompted OpenAI CEO Sam Altman to declare an internal "Code Red." This move effectively closed what was once perceived as an AI gap for Alphabet.

A second, potentially transformative growth driver is emerging from the company's proprietary Tensor Processing Units (TPUs). AI firm Anthropic has committed to purchasing up to one million of these chips, and Meta Platforms is reportedly in negotiations for a multi-billion dollar deal. This external TPU business could evolve into a substantial revenue stream in its own right, presenting a new challenge to Nvidia's market dominance.

Should investors sell immediately? Or is it worth buying Alphabet?

Regulatory Clarity Provides Stability

In a significant antitrust case brought by the U.S. Department of Justice, Judge Amit Mehta issued a ruling favorable to Alphabet. The company retains control of its Chrome browser and Android operating system, and its lucrative search partnership with Apple remains intact. While a separate case concerning digital advertising practices is still pending, with a ruling expected in early 2026, the initial outcome removes a major overhang.

Elevated Valuation Sets a Higher Bar

The powerful share price advance has altered Alphabet's market standing. The stock now trades at a forward price-to-earnings ratio of approximately 30, representing a premium to the S&P 500 after years of trading at a discount. This rerating reflects heightened expectations. Wall Street analysts currently project earnings per share (EPS) growth of 6% to $11.24 for 2026, a slowdown from the 32% growth seen in the prior year. Concurrently, capital expenditures are forecast to rise by 29% to $114.3 billion.

The current consensus price target sits at $327.81, only about 4.5% above recent trading levels.

Catalysts and Challenges on the Horizon for 2026

A notable vote of confidence came from Berkshire Hathaway, which established a new position in Alphabet during the third quarter of 2025. Looking ahead, several developments could influence the stock's trajectory: the gradual monetization of Google Cloud's $155 billion backlog, further external TPU sales agreements, and the potential initial public offering of SpaceX. Alphabet's approximate 7% stake in SpaceX could be worth around $70 billion if the company achieves a rumored trillion-dollar valuation. Furthermore, the pending $32 billion acquisition of cybersecurity firm Wiz is slated for completion in early 2026.

However, the company's success in 2025 has set a high bar. The elevated expectations and ambitious valuation multiple will make a repeat of last year's outperformance challenging. Alphabet must now demonstrate that its massive investments in AI will translate into sustainable, long-term revenue growth.