This Growth Stock Continues to Crush the Market

There's little doubt that Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company of internet giant Google, has been a winning investment.

Shares have returned over 11,470% since the start of 2004, and have surged by over 63% in the past year alone. Investors should probably try to keep their future expectations somewhat grounded for a stock that now carries a whopping $3.5 trillion market cap.

Still, it's hard to deny the company's jaw-dropping momentum as it continues to establish itself as arguably the leading artificial intelligence (AI) stock.

Here is why Alphabet is crushing the broader stock market, and why its strong momentum could continue into 2026.

Image source: Getty Images.

Alphabet's AI narrative has done a complete one-eighty

Initially, investors worried that ChatGPT's viral popularity beginning in early 2023 was a sign that Google's legacy search engine business, which prints massive profits from digital ads, would go the way of the dodo bird.

But while ChatGPT has since grown into a juggernaut with over 6.2 billion visits in the last month alone, it hasn't been the existential threat many feared. Google Search generated $56.5 billion in revenue in the third quarter of this year, up 14.5% from the same quarter a year ago.

Alphabet has moved quickly to integrate AI features into Google Search, such as AI overviews to provide quick answers to inquiries. Alphabet also launched its own AI chatbot, Gemini, which has grown to 650 million monthly active users.

AI has gone from a threat to Alphabet's technology dominance to the next big opportunity.

OpenAI's recent mistakes could open the door for Alphabet to take the lead in AI

If Alphabet is going to lead the AI frontier, it will need to outmaneuver OpenAI. The company's ChatGPT app has become the face of AI and is currently the top AI app with an estimated 61% market share.

Sometimes, you can catch up to those in front of you. Other times, you can make up ground when they stumble. OpenAI's management team recently raised eyebrows for how it has handled concerns about the company's ability to fund its massive data center plans, totaling approximately $1.4 trillion.

CEO Sam Altman appeared to get defensive on a podcast when the interviewer questioned OpenAI's ability to fund these deals. At another event, OpenAI CFO Sarah Friar seemingly suggested that the U.S. government guarantee loans for AI infrastructure.

Friar later clarified that she mispoke, and Altman issued a statement denying that OpenAI is seeking government guarantees for its data centers. Still, it's fair to question OpenAI's ability to fund all of its deals, given that Altman himself acknowledged in his statement that OpenAI is counting on rapid revenue growth that it technically hasn't yet achieved.

Meanwhile, Alphabet generates many billions of dollars in cash flow to fund its AI investments and has ample room on its balance sheet to raise additional debt if needed. It tested those waters recently with a small bond sale.

If OpenAI ultimately hits financial constraints, it opens the door wide for Alphabet.

The stock's valuation could allow Alphabet to sustain its recent momentum

Alphabet can continue crushing the market because the stock's valuation still leaves considerable room for further price gains.

The stock trades at just under 27 times 2025 earnings estimates. Is that a bargain? Probably not, but it looks pretty reasonable for a company that analysts estimate will grow earnings at an annualized rate of 15% to 16% over the next three to five years.

Alphabet's earnings come primarily from its core digital advertising businesses (Google and YouTube) and its cloud services unit, Google Cloud. These segments continue to perform at a high level, especially Google Cloud, as AI demand funnels more cloud activity through it.

Barring something unforeseen, like the bottom suddenly dropping out of Alphabet's core businesses, it seems that yes, the stock can continue to build on its impressive returns over the past year.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.