GOOGL Rises 79% in a Year on AI Push: Will the Rally Continue in 2026?

Core Insights - Alphabet (GOOGL) shares have increased by 78.9% over the past year, significantly outperforming the Zacks Computer and Technology sector's growth of 26.9% and the Zacks Internet Services industry's increase of 75.5% due to its aggressive AI initiatives [1][3][9] Performance Overview - GOOGL's stock performance has surpassed major competitors like Microsoft, Apple, and Amazon, which recorded returns of 10.1%, 12.6%, and 0.5% respectively in the same timeframe [3] - Google maintains a dominant position in the search market with approximately 90% market share, while Microsoft's Bing holds a mere 4.22% [7] AI Integration and Cloud Growth - The company is embedding AI into its services, particularly in Search, enhancing user experience and ad performance, which is driving monetization opportunities [8][10] - Google Cloud's revenue has risen by 34% year-over-year, with a backlog of $155 billion as of Q3 2025, indicating strong demand for its AI-driven services [9][12] - The number of new Google Cloud Platform (GCP) customers has increased by roughly 34% year-over-year, with significant deals exceeding $1 billion signed [13] Future Prospects - Alphabet's capital expenditure is projected to be between $91 billion and $93 billion for 2025, with expectations for further increases in 2026 [21] - Despite strong growth, challenges such as capacity constraints and rising operational costs may impact profitability in 2026 [22] Earnings Estimates - The Zacks Consensus Estimate for Q4 2025 earnings is $2.58 per share, reflecting a 20% year-over-year growth, while revenues are expected to reach $94.26 billion, indicating a 15.5% increase [16] - For the full year 2025, earnings are estimated at $10.52 per share, suggesting a 30.9% growth from 2024, with revenues projected at $340.26 billion, implying a 15.3% growth [17] Valuation Insights - GOOGL is currently considered overvalued with a forward price/sales ratio of 9.84X, compared to the industry average of 7.82X and sector average of 6.8X [18]