The massive amounts of capex swirling around the AI ecosystem have sparked worries that a bubble is in the offing. Alphabet (NASDAQ:GOOGL) has been one of the major spenders, and is guiding for a total of $91 to $93 billion in capex for 2025.
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While the spending is significant, Alphabet has the means to pay for it. The company’s net income for the last quarter was just shy of $35 billion, giving it plenty of cushion to keep the spigots open.
Though he acknowledges that the AI story is still in its early stages, investor Justin Pope believes that Alphabet is well-positioned to take full advantage of the changing landscape. In fact, he expects a firm demonstration of Alphabet’s prowess in the coming year.
“Alphabet, not Nvidia, will be the world’s largest company in 2026,” declares the 5-star investor.
Pope explains that Alphabet is much more than simply the “world’s most prominent internet company.” Beyond YouTube, Google Chrome, and Google Workspace, the investor points out that Google Cloud is the third-largest cloud computing services platform. The company has also developed its own AI chips – TPUs – for use in its data centers.
“Alphabet owns a comprehensive AI ecosystem that gives it a significant competitive advantage over most other AI companies, which typically own only pieces of an ecosystem,” adds Pope.
Moreover, the company’s legacy businesses are thriving, Pope points out. Google Services continues to generate substantial cash, with revenues from the recent quarter of $87.1 billion representing 14% year-over-year growth. That allows Alphabet to fund its AI investments through profits rather than debt, notes Pope.
When it comes to GOOGL’s valuation, the investor argues that its price-to-earnings ratio of 29x is perfectly “reasonable” for a company that is delivering earnings growth in the high teens.
In other words, the coming year could be a good one indeed for GOOGL.
“That leaves room for the stock to continue higher through 2026 if Alphabet’s businesses continue to perform well,” concludes Pope. (To watch Justin Pope’s track record, click here)
By and large, Wall Street agrees. With 28 Buys and 7 Holds, GOOGL enjoys a Moderate Buy consensus rating. Its 12-month average price target of $326.41 would translate into only minimal upside, however, meaning that much of the implied optimism has already been achieved. (See GOOGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.