Is GOOGL Stock Still a Buy in 2026 After Its 65% Rally?

Alphabet Inc. (GOOGL) has surged 65% in 2025, driven by optimism around its AI-driven transformation. But with the stock trading at a forward P/E ratio of 28 times 2026 analyst estimates, investors must ask: Is GOOGL still a buy in 2026, or has the rally priced in too much of its AI potential? This analysis examines Alphabet's growth sustainability, competitive positioning, and valuation realism to answer that question.

AI-Driven Growth: A Structural Advantage

Alphabet's AI ambitions are no longer speculative. In Q3 2025, Google Cloud revenue grew 34% year-over-year to $15.2 billion, with enterprise AI products contributing billions in quarterly revenue. The segment's operating income surged 84%, underscoring the profitability of AI-driven cloud services. Alphabet's custom Tensor Processing Units (TPUs) provide a structural cost edge over rivals like Microsoft, which still relies on Nvidia's GPUs. These TPUs are now being rented to external customers, including Anthropic, in a $21 billion deployment deal.

The company's Gemini large language model (LLM) further cements its AI leadership. Unlike Microsoft's reliance on external models like OpenAI's GPT, Alphabet's vertically integrated approach allows it to train and deploy AI internally, creating a "flywheel effect" that enhances both efficiency and scalability. Meanwhile, AI-powered features in core products-such as AI Overviews in Search and AI Mode in the Services segment-have driven 15% year-over-year revenue growth in Q3 2025.

Competitive Positioning: Alphabet vs. Microsoft and Nvidia

Alphabet's AI strategy contrasts sharply with its peers. Microsoft's Azure, while growing 40% year-over-year in Q3 2025, faces capacity constraints and depends on external GPU suppliers. Alphabet's TPUs, by contrast, offer a cost advantage and reduce reliance on third-party hardware. Analysts project Alphabet's forward P/E of 28 for 2026, compared to Microsoft's 30x, suggesting the market values Alphabet's integrated AI stack more favorably.

Nvidia, the AI infrastructure leader, trades at a forward P/E under 23x, reflecting its cyclical exposure to chip sales. While Nvidia's CUDA platform dominates AI hardware, Alphabet's diversified business model-relying on recurring revenue from advertising, cloud, and subscriptions-offers more resilience. Alphabet's stock has outperformed Nvidia year-to-date, gaining 60% compared to Nvidia's 16%, as investors bet on its ecosystem-driven AI monetization.

Valuation Realism: A Balancing Act

Alphabet's current P/E of 30.81 exceeds its 10-year historical average of 27.66 but remains below the tech sector's 30x benchmark. Analysts project 3-5% EPS growth in 2026, reaching $11.00-$11.25, which implies a forward P/E of 28. This is reasonable given the company's AI-driven revenue streams and a broader industry context where AI capital spending is expected to grow 60% in 2025 according to UBS analysis.

However, risks persist. Antitrust actions set to take effect in early 2026 could slow revenue growth to 7-9%, and Alphabet's P/E is 11% above its historical average. Analysts have a "Moderate Buy" rating, with an average price target of $317.76, but the wide range of targets-from $190 to $400-reflects uncertainty about the sustainability of AI-driven growth.

Conclusion: A Buy, But With Caution

Alphabet's AI-driven growth appears durable, with a vertically integrated tech stack, cost-advantaged TPUs, and a diversified revenue model. Its valuation, while elevated, is justified by the potential of AI to transform its cloud, advertising, and enterprise offerings. However, investors should remain cautious about regulatory headwinds and the risk of moderation in AI infrastructure spending. For those with a long-term horizon, GOOGL remains a compelling buy in 2026, but the rally has priced in significant optimism that may not fully materialize.