Key Points Alphabet was able to change investors' perceptions about the impact of AI on its business in 2025. The company looks well positioned to continue to drive growth in 2026. 10 stocks we like better than Alphabet › Heading into 2025, I predicted that the best performer among the so-called "Magnificent Seven" stocks for the year would be Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). That proved to be the correct call, as the stock climbed more than 65%, finishing well ahead of second-place perform ...

Core Insights - Alphabet has recently made significant moves, including a $4 billion investment from Berkshire Hathaway and the acquisition of Intersect for $4.75 billion, which has led to a surge in its stock price to all-time highs [1][2]. Group 1: Acquisition Details - Alphabet announced a definitive agreement to acquire Intersect, a company specializing in data center and energy infrastructure solutions, for $4.75 billion [2]. - The acquisition aligns with Alphabet's strategy to enhance its capabilities in artificial intelligence (AI) and energy management, which are critical for the future of its operations [2][8]. Group 2: Importance of Intersect - Intersect develops utility-scale renewable energy solutions for data centers, utilizing various power generation sources like wind, solar, and battery, which allows for efficient energy management [5][6]. - The rising costs of energy are a significant concern for AI developers, and Intersect's expertise in energy management can help Alphabet mitigate these costs as AI workloads increase [6][7]. Group 3: Strategic Implications - By acquiring Intersect, Alphabet aims to gain control over its future energy costs, improving efficiency in accessing data center capacity compared to relying on external utility providers [8]. - This move is consistent with Alphabet's vertically integrated business model across its various sectors, including search, cloud, advertising, and consumer electronics [9].

Core Viewpoint - The market is near all-time highs, and despite concerns about an AI bubble and potential market crash, there are stocks that remain strong holds, particularly Alphabet and Amazon, which are expected to thrive in the long term due to their advancements in AI and robotics. Group 1: Alphabet - Alphabet is positioned to be a significant long-term winner in AI, driven by innovation that enhances its products [3] - The emergence of OpenAI has catalyzed Alphabet's innovation, revealing its previously underappreciated technological advancements [4] - Alphabet's Tensor Processing Units (TPUs) provide a substantial structural cost advantage, benefiting both its cloud computing unit and AI model training [5] - The integration of the Gemini model across Alphabet's product portfolio is enhancing revenue growth and improving user engagement through AI applications in Google Search, Maps, and Gmail [6] - Alphabet is currently benefiting from a virtuous cycle due to its vertical integration, making it a stock to hold during market downturns [7] Group 2: Amazon - Amazon is recognized for its significant advancements in robotics, which are utilized in its fulfillment centers to enhance efficiency rather than for direct revenue generation [9] - The company is considered one of the leading firms in robotics, although it does not receive adequate recognition for this leadership [9]

Core Viewpoint - The market is currently experiencing a positive trend driven by AI stocks, with the S&P 500 reaching a record high, but there are opportunities beyond the well-known "Mag 7" stocks for 2026 [1][2]. Group 1: Investment Opportunities - There is a belief that diversifying investments outside of the crowded trades represented by the Mag 7 is not only safe but also a smart strategy for future growth [2][3]. - Companies like Photronics, which are related to AI but not part of the mainstream AI stocks, have been highlighted as potential investment opportunities [3]. - Google is identified as a standout within the Mag 7 due to its ownership of its cloud infrastructure, AI capabilities, and strong cash flow generation, making it a likely winner in the future [5][6]. Group 2: Market Dynamics - The current market is characterized by concentrated trades, and many stocks have been assigned valuations that may not be justified by their competitive advantages compared to firms like Google [7]. - There is speculation about the existence of an AI bubble, but it is suggested that major corrections may be less likely due to political and regulatory factors that favor maintaining high liquidity in the market [9]. - The concept of "microbubbles" is introduced, indicating that while some stocks may be overvalued, the overall market may not experience a significant downturn, but rather a more discerning approach to valuations [10]. Group 3: Company Performance - Google has seen a 62% increase in stock price over the past year, supported by advancements like the new Gemini model and investments from Berkshire Hathaway [7]. - Oracle is mentioned as a potential loser in the current market due to its inability to generate cash flows comparable to Google, which may hinder its competitiveness in the AI space [11][12]. - The high level of spending in the tech sector means that only a few companies will be able to sustain their positions, with those unable to keep up, like Oracle, likely to struggle in 2026 [12].

Core Viewpoint - Nvidia and Alphabet are identified as strong investment opportunities in the AI sector heading into the new year, particularly for long-term growth [1]. Nvidia - Nvidia holds over 90% market share in the GPU market, primarily due to its established ecosystem and the CUDA software platform, which is essential for AI workloads [3]. - The acquisition of SchedMD enhances Nvidia's software capabilities by providing control over the AI orchestration layer through the Slurm platform, optimizing GPU task assignments [4]. - Nvidia's proprietary NvLink interconnect system allows for faster data transfer between GPUs, improving performance for large language model training [6]. - The company is well-positioned to benefit from increasing AI infrastructure spending, with significant growth potential as the AI market is still in its early stages [7]. Alphabet - Alphabet has developed its own custom AI chips, Tensor Processing Units (TPUs), which are optimized for its Tensorflow framework, providing a competitive edge over other cloud computing competitors [8]. - TPUs offer better price-performance and power efficiency, allowing Alphabet to train its AI models more cost-effectively, thus enhancing margins for its cloud computing business [9]. - The continuous improvement of Alphabet's Gemini model across its product ecosystem strengthens its market position, leveraging its existing search and advertising capabilities [11][12]. - Alphabet's advantages in cost, distribution, monetization, and data position it as a strong contender for long-term success in the AI space [13].

Core Insights - Berkshire Hathaway, led by Warren Buffett, has taken a significant stake in Alphabet during the second quarter, marking a notable investment decision as Buffett has previously expressed regret for not investing in Alphabet sooner [1][2] - Alphabet's stock has experienced substantial growth since Berkshire's investment, raising questions about its future value and whether it remains a good investment for 2026 [2][5] Investment Details - Berkshire's investment in Alphabet was disclosed through Form 13F filings, indicating that shares were purchased between July 1 and September 30, with potential gains depending on the timing of the purchases [4] - Since July 1, Alphabet's stock has increased by approximately 75%, and even if purchased at the end of September, it has still risen nearly 30%, showcasing strong short-term performance [5] Valuation Analysis - At the time of Berkshire's potential purchase, Alphabet was trading at over 16 times forward earnings, but it has since risen to 29 times forward earnings, indicating a shift from a discount to a premium compared to the S&P 500, which trades at 22 times forward earnings [7][9] - The significant increase in valuation raises questions about the current attractiveness of Alphabet as an investment [9] Growth Drivers - Alphabet's recent stock surge can be attributed to positive developments in a court case regarding its Google Search engine, where it faced less severe concessions than anticipated [9] - The company has also established itself as a leader in the generative AI sector, prompting competitors like OpenAI to express concern over Alphabet's advancements [10] Financial Performance - Alphabet's core businesses, including advertising and cloud computing, have shown strong growth, with Google Search revenue increasing by 15% year-over-year and Google Cloud growing by 34% in the third quarter, contributing to an overall growth of 16% for the quarter [12] - Diluted earnings per share (EPS) rose by 35%, indicating robust financial health and potential for continued success [12] Future Outlook - Given Alphabet's strong position and growth trajectory, it is suggested that investors may consider following Buffett's lead in investing in Alphabet, although returns may differ due to the timing of entry into the stock [13]

Group 1 - The AI sentiment has been volatile, particularly influenced by Oracle and private credit funding for AI projects [1][2] - Concerns are rising regarding the capital expenditures committed by companies like Oracle and OpenAI, leading to market rotations within the AI sector [2][4] - The AI theme is driving performance across various sectors, including utilities and industrials, indicating its broad impact on the market [4][31] Group 2 - The current market backdrop is reasonably positive, supported by monetary and fiscal policies, with earnings expectations for small, mid, and large caps looking for mid double-digit returns [5][11] - Small caps have maintained earnings estimates throughout the year, while midcaps have struggled, highlighting a "prove it" story for these companies [6][7] - The Federal Reserve's potential rate cuts in the coming year could further support risk assets and market performance [7][8] Group 3 - GE Vernova is positioned as a core holding in large-cap growth portfolios due to its significant role in energy generation and the expected demand for natural gas turbines [14][15] - The company has doubled its capacity and seen turbine pricing triple over the past three years, indicating strong growth potential [19][20] - GE Vernova's business model is shifting towards recurring revenue through service agreements associated with new turbine installations [21][22] Group 4 - Tesla's energy business is gaining importance, with expectations shifting towards autonomy and energy rather than solely electric vehicles [24][25] - The company's energy segment is now viewed as equally valuable as its automotive business, reflecting a broader market trend towards energy solutions [25][34] - The concentration of earnings growth in the largest S&P 500 stocks is a concern, but there is an expectation of acceleration in earnings for the broader market [30][31] Group 5 - The Dow transports have shown significant gains, suggesting a potential economic boom driven by infrastructure projects and fiscal policy stimulus [35][40] - Energy costs are decreasing, providing a tax benefit to companies in the transport sector, which is expected to continue into the next year [41]

Core Insights - Alphabet's stock has experienced significant growth, rising over 80% since July 1, 2025, and is expected to continue this momentum into 2026 [1][2] - The company is positioned to potentially become the world's largest company, currently holding a market cap of $3.9 trillion, closely trailing Nvidia and Apple [4] - Alphabet's growth is driven by strong earnings growth, particularly in its core Google Search and cloud computing divisions [6][10] Google Search Performance - Google Search, Alphabet's primary business, has shown a 15% revenue growth in Q3 2025, despite facing a monopoly case earlier in the year [7] - The resolution of the monopoly case in September has positively impacted the stock, allowing for continued solid growth [7] Generative AI and Competitive Position - Alphabet has made significant strides in the generative AI space, reportedly causing OpenAI to declare a "code red" due to Alphabet's competitive advancements [8] - The Gemini model is highlighted as a strong contender in the AI race, indicating Alphabet's potential to lead in this sector [8] Cloud Computing Growth - Google Cloud has seen a 34% year-over-year revenue increase in Q3, benefiting from the demand for AI-focused data centers [10] - The operating margin for Google Cloud improved from 17% to 24% year-over-year, showcasing enhanced profitability [10] Future Growth Opportunities - Alphabet is exploring new revenue streams through the potential sale of its Tensor Processing Units (TPUs) to Meta Platforms, which could further boost its stock price [12][13] - The company is also investing in quantum computing, having run the first verifiable algorithm on its Willow chip, positioning itself for future advancements in computing technology [14] Overall Outlook - Alphabet is excelling across multiple business units and is seen as a promising investment in the AI sector, with expectations of continued market leadership into 2026 and beyond [15]

Product Features & Capabilities - Gemini model now offers live translation functionality within the Google Translate app, compatible with any headphones [1] - The translation feature supports over 70 languages and more than 2,000 language pairs [3] - The feature is designed to be useful for travel and communication, even in noisy environments [3] Use Cases & Applications - The live translation feature can be used to ask for travel advice from colleagues [1] - Potential travel destinations mentioned include Korea (Seoul), China (Beijing, Chongqing, Shanghai), and Germany (Christmas markets) [2] - The feature can be used for communication with in-laws [3]

Group 1 - The search for new Asian equity winners in the artificial intelligence sector is intensifying as the market shifts focus from established leaders to smaller companies like MediaTek Inc. and Zhongji Innolight Co. [1] - Major firms essential to AI's infrastructure are expected to rebound after a period of cooling, as attention shifts from large language model training to everyday applications and cost reduction [2] - The market narrative is evolving, questioning whether OpenAI will remain the dominant player in large language models, prompting a recalibration of risk premiums [3] Group 2 - The recent launch of Alphabet Inc.'s upgraded Gemini model and its partnerships for in-house AI chips have contributed to a shift away from stocks heavily reliant on OpenAI and Nvidia [4] - SoftBank Group Corp., closely associated with OpenAI, experienced a significant stock decline of 38% in November, marking its worst month in 25 years, while TSMC and SK Hynix shares also fell by 4% [5] - As competition increases for ChatGPT, Nvidia's AI training processors are losing market focus, raising concerns about potential negative impacts on product pricing [6] Group 3 - If large language models become commoditized, companies with lower costs are likely to emerge as winners, indicating a critical period ahead for the AI bubble created by Nvidia and OpenAI [7]