The potential for growth remains significant.
Although this year has not been particularly favorable for the so-called “Magnificent Seven” stocks, which comprise a select group of major tech and tech-adjacent companies, there are signs of promise. This group includes Alphabet (GOOG 0.24%) (GOOGL 0.20%), Amazon (AMZN +0.06%), Apple (AAPL 0.19%), Microsoft (MSFT 0.06%), Meta Platforms (META 0.64%), Nvidia (NVDA +1.02%), and Tesla (TSLA 2.08%).
Only three of these stocks have managed to outperform the S&P 500 index this year, while the remaining four are lagging behind. Among this distinguished group, one standout is Alphabet, whose shares have surged by 63% at the time of writing. This performance significantly surpasses the next closest competitor, Nvidia, which is up by 37%. As we look ahead to 2026, the pivotal question arises: Are Alphabet’s shares still a wise investment?
Image source: Getty Images.
Discover the Factors Behind Alphabet’s Strong Performance This Year
Initially, Alphabet did not demonstrate a robust start to the year. However, two significant developments occurred that led to a remarkable turnaround. Firstly, Alphabet released impressive financial results that showcased its resilience. The company’s advancements in cloud computing and artificial intelligence (AI) have played a crucial role in this success. Despite facing competition from emerging AI chatbots, Alphabet continues to dominate the search engine landscape while also delivering highly sought-after AI services via its cloud platform.
Secondly, Alphabet experienced a noteworthy legal victory, or rather, a favorable outcome that mitigated potential setbacks. The tech behemoth was awaiting a judicial ruling on an antitrust lawsuit initiated by the U.S. Department of Justice. The lawsuit alleged that Alphabet monopolized the internet search market. However, the company successfully navigated the situation without having to divest its essential Google Chrome browser, a critical component of its advertising ecosystem. With this substantial legal hurdle cleared, Alphabet appears to be on an unstoppable trajectory.
Today’s Change
(-0.20%) $-0.62
Current Price
$313.47
Essential Data Points for Investors
Market Cap
$3.8T
Day’s Range
$312.27 – $315.10
52wk Range
$140.53 – $328.83
Volume
475K
Avg Vol
36M
Gross Margin
59.18%
Dividend Yield
0.26%
What Trends May Shape Alphabet’s Future Success?
Another significant reason Alphabet has outshined its Magnificent Seven counterparts is its reasonable valuation, particularly when analyzed through established valuation standards. This aspect continues to hold true (as illustrated in the following charts), providing a solid basis for optimism regarding the company’s medium-term outlook.
GOOG PE Ratio (Forward) data by YCharts
One of the driving forces behind Alphabet’s anticipated growth over the next five years will be its ongoing advancements in AI technology. This encompasses not only the innovative products available through its cloud services but also the Gemini 3 subscription model offered to consumers. Alphabet has integrated AI tools throughout its operations to enhance profitability. For example, it has refined its search algorithms utilizing AI technologies and introduced features like AI mode and AI overviews. These enhancements yield superior search results, increased search volumes, and ultimately, augmented revenue from advertisements. Moreover, Alphabet has harnessed AI to assist businesses in automating their ad campaigns, making the process significantly more efficient and productive. This strategy also contributes to increased advertising revenue for Alphabet.
Additionally, Alphabet employs AI-driven algorithms on platforms such as YouTube to recommend personalized content to users, which boosts viewer engagement. Beyond AI initiatives, Alphabet’s Google Cloud division is poised for substantial revenue growth in the coming years. While it operates at lower margins compared to advertising, it is currently experiencing rapid growth, a trend that is likely to persist. During its third-quarter earnings conference call, Alphabet revealed that its Google Cloud backlog surged to $155 billion, marking a remarkable 46% increase from the previous quarter.
The company also highlighted that its Cloud operating margins are expanding, and it is acquiring new customers at an accelerated pace. Notably, Alphabet is achieving this growth amidst intense competition from its Magnificent Seven peers, particularly Amazon and Microsoft, both of which hold significant market shares.
In my assessment, considering the robustness of its advertising and cloud computing sectors, Alphabet’s shares appear significantly undervalued, especially when factoring in other growth opportunities such as its expanding subscription services that provide a reliable revenue stream. As we approach the new year, Alphabet continues to look appealing as an investment. While it may or may not secure the title of the best-performing stock among the Magnificent Seven in 2026, it is poised to outperform the broader market over the next five years.
Prosper Junior Bakiny has positions in Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
