Google parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) faced considerable challenges for most of the last five years. The release of GPT-4 appeared to catch the company off guard. For the first time in decades, investors began to doubt the dominance of Google Search as more users turned to artificial intelligence-driven search tools.
Fortunately, Alphabet has reasserted its dominance, and in the minds of some, it now has the leading AI tool. For this reason, its five-year performance far surpasses the S&P 500 (SNPINDEX: ^GSPC). Moreover, it will likely beat the market over the next five years. Here’s why.
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Alphabet stock is back in growth mode because it has leveraged its massive cash hoard and existing intellectual property to make a comeback in AI.
Admittedly, the waning influence of Google Search had hurt the company for reasons other than competing AI tools. Google designed its search engine to direct users to websites and collected revenue from digital ads from that model. Since the AI tools often give users the desired information directly, it reduced the need for such ads.
Nonetheless, amid the release of Gemini 3, breakthroughs in processing and understanding multiple types of data seem to have given the company’s tool a technical edge, which is probably why it is gaining attention from institutional investors.
Moreover, Alphabet has long worked to reduce its dependence on digital ads, which still make up 73% of its revenue. To that end, Google Cloud now generates 15% of the company’s revenue, up from 12% last year.
Additionally, Waymo is one of the leading autonomous driving platforms and boasts 20 million rides to date. As it moves into new markets, it will likely emerge as an increasingly critical revenue source over time.
Furthermore, Alphabet continues to step up its investment in AI. For 2026, it pledges to invest between $175 billion and $185 billion, up from $91 billion in 2025. Also, it holds almost $127 billion in liquidity and generated $73 billion in free cash flow in 2025, a figure that does not include capital expenditures. Thus, it can likely afford to invest heavily in its AI while staying competitive over time.
Finally, despite its recent gains, Alphabet stock does not appear expensive. Its P/E ratio of 30 closely approximates the S&P 500 averages. Thus, it remains in a strong position to generate market-beating returns as it cements its AI leadership.
