Street Calls of the Week
Alphabet (NASDAQ:GOOG) continues to dominate global markets as its stock consolidates near $320, marking one of the strongest runs in mega-cap history. The company’s valuation now stands close to $3.9 trillion, after gaining over 70% year-to-date and more than 120% since April’s low, powered by record-breaking performance across its AI, cloud, and infrastructure divisions. The real catalyst lies in the convergence of Gemini 3’s integration, Google Cloud’s surging profitability, and Alphabet’s bold entry into the AI semiconductor market through its proprietary Tensor Processing Units (TPUs). This combination has transformed the company’s growth narrative from ad-dominant to full-stack AI powerhouse.
Gemini 3 is the central pillar of Alphabet’s new growth architecture. This latest AI model represents the most advanced multimodal engine in the market, capable of synthesizing video, image, and text simultaneously — a direct consequence of Alphabet’s proprietary data leverage from YouTube’s 2.7 billion monthly users. Gemini 3’s integration within Google Workspace, Android, and Search creates a self-reinforcing user loop, where AI intelligence operates invisibly across Google’s global platform.
Its deployment strategy marks the transition from experimental AI to mass-market intelligence. While OpenAI’s ChatGPT gained momentum through a standalone product, Alphabet embedded Gemini across its core ecosystem, capturing instant scale from its 93% search market share and 73% Android OS penetration. Analysts estimate over 700 million monthly Gemini users by early 2026 — a figure that could surpass the entire ChatGPT user base due to seamless cross-platform integration.
The AI infrastructure market’s next phase is being defined by Google’s TPUs. Alphabet’s landmark agreement with Meta Platforms (NASDAQ:META) to supply its 7th-generation Ironwood TPUs positions it directly against NVIDIA (NASDAQ:NVDA) as a credible alternative in the high-performance compute market. The partnership involves a rollout beginning in 2027, with early access for Meta through Google Cloud leasing as soon as next year.
These TPUs, optimized for generative AI workloads, inference, and fine-tuning, are 80% more energy-efficient than NVIDIA’s H100 chips, offering hyperscalers an immediate cost advantage. Alphabet’s goal to capture 10% of Nvidia’s annual data center revenue — roughly $13 billion — could translate into an estimated $4 billion net income boost per year. Beyond direct profits, the strategic gain is greater: the deal redefines Google’s cloud ecosystem as a hybrid between infrastructure provider and AI semiconductor manufacturer, giving it a vertical stack that only Amazon (NASDAQ:AMZN) partially matches.
Alphabet’s greatest competitive edge lies in its end-to-end integration. Unlike Microsoft, which relies on OpenAI for models and Nvidia for compute, Google owns every layer — from silicon to software. TPUs, data centers, Gemini models, and Google Cloud form a vertically unified ecosystem that delivers unmatched cost control and speed.
Training AI models on proprietary TPUs lowers Alphabet’s compute cost by nearly 80% relative to industry benchmarks. This allows it to offer AI capabilities “for free” inside its ecosystem, monetized indirectly via ads, subscriptions, and data utilization. For instance, a query made through Gemini in Search not only enhances ad targeting efficiency but also strengthens Alphabet’s data moat. The result is an economic flywheel where AI deployment reduces per-user costs while raising engagement and ad conversion metrics.
Google Cloud, once the underperformer of the hyperscale triad, has evolved into Alphabet’s most efficient growth engine. Quarterly revenue now exceeds $10 billion, and its 46% QoQ backlog increase to $155 billion underscores sustained enterprise demand. Over 70% of Google Cloud clients now deploy AI-based workloads, demonstrating how deeply AI has penetrated the company’s infrastructure-as-a-service model.
Profitability has surged as well — the segment now contributes meaningfully to operating margins, marking a complete turnaround from its loss-making phase in 2022. Alphabet’s bundling strategy ensures that once clients adopt its TPUs or generative APIs, their data becomes “anchored” within the platform due to data gravity and exit-cost economics. This lock-in effect ensures long-term revenue durability and keeps switching costs prohibitively high for competitors.
Alphabet’s financials reflect the tangible rewards of its AI strategy. With gross margins at 59.2% and net income margins at 32.2%, the company has achieved record efficiency while sustaining double-digit revenue growth. The return on capital employed (ROCE) of 35% highlights exceptional capital utilization despite unprecedented CapEx in data centers, TPU manufacturing, and Gemini development.
The ability to maintain profitability while expanding AI investments proves Alphabet’s structural cost advantage. Its compute cost per query remains approximately 20% of OpenAI’s — a margin that transforms AI from a cost center to a profit amplifier. Furthermore, the P/E ratio of 30.4x, while above its five-year average of 25x, still trades below its expected AI-driven growth rate of 35–40%, justifying a forward multiple re-rating toward 40x. This expansion could push the company’s valuation toward $5 trillion, overtaking Apple and Microsoft in market capitalization.
The GOOG chart reveals a parabolic move unmatched among mega-cap peers. The stock has advanced for eight consecutive months, posting 10%+ monthly gains for four straight months — a historic record since 2004. The stock trades 61% above its 200-day moving average, a rare indicator of momentum strength but also a sign of short-term overheating.
The 52-week range between $142.66 and $328.67 confirms that Alphabet’s valuation re-rating has occurred faster than earnings adjustments, but not without justification. Institutional participation remains dominant, with average daily volume of 26 million shares and short interest below 0.8%, signaling conviction-based accumulation rather than speculative trading.
Alphabet’s Waymo division is quietly maturing into a third engine of profitability. Though it recorded $3.9 billion in losses year-to-date, its path to commercialization is accelerating, with pilot robotaxi programs scaling across Phoenix, San Francisco, and Los Angeles. Waymo’s integration of Gemini-based perception and prediction models allows for real-time decision optimization in autonomous driving.
The strategic synergy between Waymo and Gemini represents Alphabet’s vision beyond digital interfaces — embedding AI into physical mobility. This will likely generate recurring revenue through partnerships with automakers and urban transport networks, potentially converting Waymo into a revenue-positive business by 2027.
The removal of the antitrust overhang after a September 2025 federal court ruling marked a major inflection point. With the threat of forced divestiture dismissed, Alphabet now has operational freedom to scale Gemini and TPU initiatives without structural risk. This resolution not only restored investor confidence but also allowed Alphabet to pursue partnerships like the Meta chip deal without regulatory friction.
The company remains under macro scrutiny for AI ethics and data privacy, but given its proven record in content moderation and compliance, the risks appear manageable. Alphabet’s strong governance and global infrastructure compliance (particularly in the EU) fortify its regulatory resilience relative to peers.
Alphabet’s approach to AI monetization diverges from subscription-based rivals. Instead of charging per-use for Gemini access, Google embeds AI functionality into everyday products like Search, YouTube, and Workspace — extracting value indirectly through higher ad yield, engagement, and cloud utilization.
This bundling approach creates perpetual cross-sell opportunities. For example, enterprise clients using Gemini within Workspace often expand into Google Cloud storage, analytics, and TPU-based compute, triggering cascading revenue effects.
The strategy mirrors the economics of utilities — Alphabet earns by enabling volume, not by limiting access — positioning it as the “AI infrastructure utility” of the decade.
At $320, Alphabet trades at a forward market cap of $3.86 trillion with earnings momentum unmatched among peers. The company’s net income trajectory suggests over $120 billion annualized, placing it alongside Apple in absolute profitability but with higher growth leverage. If Alphabet’s P/E expands toward 40x — comparable to AI leaders like Nvidia — the path to a $5 trillion valuation becomes realistic within the next 12 months.
Alphabet’s transformation from ad-driven enterprise to AI infrastructure leader is now complete. With Gemini 3 setting new performance standards, TPUs disrupting Nvidia’s cost monopoly, and Cloud profitability accelerating, the stock represents the clearest structural long-term buy among the Magnificent Seven.
The bullish trajectory remains intact as the company scales its ecosystem around a vertically integrated AI model unmatched in cost, reach, and efficiency. Based on current earnings velocity and margin expansion, GOOG holds a near-term upside target of $350–$370, establishing a path toward $5 trillion valuation by late 2026.