Alphabet Inc. (NASDAQ:GOOGL) is in the news as prediction market Polymarket gives Google a 70% chance of having the top AI model at the end of October, ahead of Anthropic at 23%. Alphabet stock ranks #6 on our list of the 8 best-performing stock picks by Claude AI.
Bull Case: Google Owns the Whole AI Stack
Alphabet has a cost edge in AI because it builds its own chips, trains its own frontier model, and sells both through Google Cloud. Running Gemini on its own Tensor Processing Units costs less than renting chips from other companies, so Google can cut prices and still protect its margins. Google Cloud CEO Thomas Kurian said at the Goldman Sachs conference that Google is the only provider with first-party products across the entire stack and that it is winning new customers about twice as fast as a year ago. Google is also testing its next model, Gemini 4 Argon, with a few large companies, and the Gemini app reached 950 million monthly active users in the second quarter. Baron Opportunity Fund added to its Alphabet position in the second quarter, and this letter explains why it calls Alphabet the primary beneficiary of the AI era.
The numbers back this up. Cloud revenue grew 82% year over year in the second quarter, and Cloud’s operating margin rose from 21% to 36%.
Search, the biggest profit engine, is also holding up. Jensen Investment Management said accelerating Search revenue over the past four quarters has eased fears that generative AI would eat into the business. See why Jensen counts Alphabet as a top contributor.
Bear Case: A Very Large AI Bill
Alphabet raised its 2026 capital spending guidance in the second quarter, and management expects spending to rise significantly again in 2027. Free cash flow turned negative in the second quarter for the first time in the company’s history. Higher depreciation from all the new servers and data centers will also put pressure on margins in the years ahead. Some funds are fine with the spending. Mar Vista Investment Partners says the AI build strengthens Alphabet’s long-term competitive position, and its full comments are here.
The second risk is competition. The gap between top AI models is small and changes fast. The Polymarket odds themselves show Anthropic at 23% and Meta rising after its new Muse Wonder release. Open-source models from DeepSeek, Kimi, and Qwen have also improved, and some companies may run those on cheap generic computing instead of paying for Gemini. A third risk is capacity. If Google cannot build servers fast enough, it cannot deliver all the AI it has sold.
Valuation: Priced for Growth That Has to Last
Alphabet trades at about 29 times forward earnings, above the S&P 500’s forward P/E of roughly 19. Revenue grew 20.05% year over year, about double the 10% growth investors expect from the market, and Cloud is growing much faster than that. Today’s growth supports the premium. Analyst consensus rates the stock a Strong Buy, while quant scoring rates it a hold. Giverny Capital Asset Management names Alphabet as one of its two largest positions, and you can read what it sees in the AI economy here.
While we acknowledge the risk and potential of GOOGL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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