Alphabet 160% rally in year reflects value of owning most of AI stack
Sundar Pichai, CEO of Alphabet Inc., during the Bloomberg Tech conference in San Francisco, California, USA, on Wednesday, June 4, 2025.
David Paul Morris | Bloomberg | Getty Images
Alphabet passed briefly Nvidia Based on market capitalization in after-hours trading this week, that’s a remarkable achievement for a company that was seen as deeply at risk in the early days of the AI boom.
The stock is up nearly 160% in the past year; This has been boosted by an emerging view on Wall Street that Google is well-positioned in the AI landscape, whether from the company’s homegrown models, its massive distribution network or its cloud unit, which is cashing in on other emerging AI businesses.
Chip designer among tech’s seven other trillion-dollar US companies broadcom Its shares increased by 107%, making it the second best performing company in the last 12 months.
“Google is one of the two best-positioned AI companies because they own most of the stack,” said Gene Munster, managing partner of Deepwater Asset Management. “Chips, models, infrastructure and distribution. And they are very profitable.”
The other company he puts in this category is Elon Musk’s SpaceX, which merged with xAI in February in a deal worth $1.75 trillion.
Following Alphabet’s earnings report last week, JPMorgan Analysts called the stock a “top overall pick” in the tech sector, citing a “standout quarter,” accelerating growth and cloud backlog that nearly doubled to $462 billion. Mizuho analysts raised their price targets, writing that consensus estimates still significantly underpredict Google Cloud revenue and operating income over the next two years.
Alphabet closed the week with a market value of $4.8 trillion, falling behind Nvidia with $5.2 trillion. The two briefly reversed after markets closed on Tuesday. report AI model developer Anthropic has committed to spending $200 billion over five years on Google Cloud for 5 gigawatts of computing.
For investors, this was the latest sign that Google has multiple ways to make money and compete at the cutting edge. There’s Gemini and DeepMind for AI models and research, Google Cloud for compute, tensor processing units (TPUs) as an alternative to Nvidia, and the ability to add AI features to search, YouTube, and Android.
But there are reasons to be skeptical in the eyes of some analysts.
The primary area of concern is how much of the backlog might come from Anthropic, a cash-burning and value-rich startup that has raised tens of billions of dollars from Google and spent most of that money on cloud services and TPUs at Google.
The reported $200 billion Anthropic commitment could represent more than 40% of future contracted revenue if measured against Alphabet’s reported cloud backlog.
The next Oracle?
Gil Luria, an analyst at Prosecutor Davidson, said the setup was reminiscent of what happened in the past. SeerIts shares took off in September after the company reported a nearly 360% increase in backlog. It soon became clear that most of these were coming from OpenAI.
“They did the same thing that Oracle did,” said Luria, who suggested holding on to Alphabet shares. “They told us their backlog had roughly doubled, but they failed to tell us that almost all of the increase was due to a deal with Anthropic.”
Google had no comment for this story, only pointing to CFO Anat Ashkenazi’s comment on the recent earnings call.
Oracle was punished after investors realized that much of its backlog growth was due to OpenAI, and the stock lost nearly half of its value in five months. Microsoft He faced similar questions regarding the emergence of OpenAI.
Luria sees concentration risk in large cloud providers. Microsoft, Oracle, Amazon and Google together have close to $2 trillion in reported cloud backlog. Nearly half of that is based on commitments from OpenAI and Anthropic, which tap the same group of companies for capital, Luria said.
Munster understands the concern but doesn’t share it, at least as it relates to Google and Anthropic.
“The agreement underlines how early we are in artificial intelligence,” Munster said. “Although use cases are limited today, the need for computing is growing exponentially. Google will ride this wave.”
If Anthropic stumbles, Munster says, other AI companies will eventually take its place.
“Headlines about the size and risk of any given customer miss the point,” he said. “If one of these customers blows up, dozens of others will take its place over time.”
Where Google has a clear and emerging advantage is in custom silicon.
Mizuho estimates that roughly $61 billion of Google’s cloud backlog by 2027 could come from TPU sales, with most of that revenue likely to be recognized next year. This gives investors another way to buy into the AI hardware trade looking for an alternative to Nvidia; is a topic that has been spreading rapidly on Wall Street lately. Advanced Micro Devices, Intel And Micron all have more than doubled this year.
Some of the demand that Google and Amazon, which manufactures Trainium, are seeing for their in-house chips comes from portfolio companies, according to Luria.
“When Google and Amazon talk about demand for their custom chips, a lot of it is constrained demand,” Luria said. “It’s not organic.”
The biggest threat to Google’s continued outperformance, according to Munster, is that the stock is already making gains in the future. He likens this scenario to what’s currently happening at Nvidia, which continues to see massive growth but is no longer rewarded by investors.
Analysts expect to see revenue growth of 78% when Nvidia reports earnings later this month, according to LSEG, but the stock is up just 15% this year, slightly outperforming the Nasdaq.
“The biggest risk of owning Google is that investors don’t have opportunities to change the narrative,” Munster said.
This puts more pressure on the company to impact Google I/O, which kicks off in less than two weeks. Google needs to clarify its delegate strategy with Gemini and demonstrate that it can generate sustainable revenue from the broader AI ecosystem.
Google quickly went from AI laggard to infrastructure winner. It now projects capital spending of up to $190 billion this year; This is more than twice the 2025 investment expenditure. For investors to get a return on this investment, Google cannot afford to make mistakes.
Analysts at Argus said in a post-earnings report that “risks to Alphabet’s capex are evident.” But they have a buy rating on the stock and see the company’s ability to absorb those expenses versus companies like OpenAI as a “competitive advantage.”
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