Key Points
-
Alphabet’s AI-powered search experiences are driving increased user engagement and opening new monetization opportunities.
-
Google Cloud’s growth trajectory in 2026 depends heavily on the pace of capacity expansion.
-
Heavy AI investments may affect near-term profitability.
- 10 stocks we like better than Alphabet ›
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has entered 2026 with record revenues, accelerating growth in Google Cloud, and aggressive artificial intelligence (AI) investment plans. Investors, however, are increasingly questioning whether AI will drive further growth or undermine it.
Image source: Getty Images.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Against this backdrop, here are three data-backed predictions that could have a key role in shaping Alphabet’s trajectory in 2026.
Google Search is building a strong competitive moat
For the past of couple years, investors have worried that AI-generated answers could reduce clicks on Google Search, thereby weakening its core advertising business. However, the early data suggest otherwise.
In its fourth-quarterearnings call Alphabet highlighted that AI-powered search experiences, such as AI Overviews and AI Mode, are driving greater usage and longer, more complex query sessions. The company’s Gemini family of large language models (LLMs) is also driving several improvements that have helped ads match better with intent, reduced irrelevant ads, and enabled monetization of longer, more complex queries that were previously difficult to monetize.
Additionally, the company is experimenting with additional monetization avenues within AI Mode, including testing ads shown below AI-generated responses, and a pilot program called Direct Offers that lets advertisers show exclusive merchant deals to shoppers who are ready to buy in AI Mode. The company also claimed that users will soon be able to complete purchases directly in AI Mode, without being redirected to external websites.
To support this shift to agentic commerce, Alphabet is also working with partners to introduce the universal commerce protocol in its consumer products. The Universal Commerce Protocol is an open standard designed to allow AI agents to interact seamlessly with merchant catalogs, pricing systems, and checkout systems.
If this shift works, search monetization will increasingly depend on purchase outcomes instead of just clicks.
Google Cloud growth will be determined by the pace of infrastructure build-out
Google Cloud’s revenues grew 48% year over year to $17.7 billion in Q4 2025. The cloud business also exited fiscal 2025 with a backlog of nearly $240 billion, up 55% sequentially.
Google Cloud’s growth trajectory in 2026, however, depends less on demand and more on how quickly the company expands its AI infrastructure. The company plans to invest $175 billion to $185 billion as capital expenditures in 2026, with a significant portion allocated toward expanding servers, data centers, and networking infrastructure.
As this additional capacity comes online, Google Cloud may experience faster-than-historical growth rates. Alphabet has disclosed that AI-focused Google Cloud customers already use 1.8x as many products as non-AI customers. This dynamic will boost the top line and create a sticky customer base.
Alphabet may see some margin pressure despite strong fundamentals
Alphabet’s CFO Anat Ashkenazi has cautioned that rising capital spending can drive higher depreciation and data center operating costs in 2026. This cost escalation could pressure operating margins and near-term profitability in 2026.
However, management has also disclosed that Gemini AI’s serving unit costs have declined sharply in 2025 due to efficiency gains. Alphabet also generated record operating and free cash flow in 2025, giving it high flexibility to fund future AI investments.
Hence, although margins may be under pressure in 2026, profitability may improve as AI adoption continues to further increases across the Search and Cloud businesses.
Should you buy stock in Alphabet right now?
Before you buy stock in Alphabet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $424,262!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,163,635!*
Now, it’s worth noting Stock Advisor’s total average return is 904% — a market-crushing outperformance compared to 194% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of February 22, 2026.
Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
