Over the past year, Google's parent company, Alphabet, has transformed from a laggard in artificial intelligence into virtually the only enterprise dominating nearly every facet of this technology. Now, it is closing in on an even grander goal: overtaking AI chip giant Nvidia to claim the title of the world's most valuable company.
Market data shows that as of last Friday's close, Alphabet's market capitalization stood at US$4.8 trillion, while Nvidia's was US$5.2 trillion — a gap of only about US$400 billion. In after-hours trading last Tuesday (May 5), the two companies briefly swapped positions in the market-cap rankings.
Over the past six months, the valuation gap has narrowed significantly, driven by a sharp rally in Alphabet's stock. In April alone, shares surged 34%, marking their best monthly performance since 2004. Back on October 31 of last year, the difference was substantial: Nvidia's market cap was US$4.9 trillion, while Alphabet's was less than US$3.4 trillion.
But since then, Alphabet's stock has soared 43%, while Nvidia has risen just 6.3%, lagging behind both the S&P 500 and the tech-heavy Nasdaq 100 Index.
Many investors believe it would be logical for Alphabet to eventually capture the title of the world's largest company by market cap, given its deep reach across critical segments of the tech industry and the AI landscape.
"Alphabet has significant positions in nearly every corner of the AI ecosystem, and its comprehensive business portfolio puts it in an excellent position to be the biggest winner from AI," said Luke O'Neill, chief investment officer at CooksonPeirce Wealth Management, which holds shares in both Alphabet and Nvidia.
While Nvidia leads in AI chip manufacturing, Alphabet's competing product, the Tensor Processing Unit (TPU), is gaining favor. Moreover, Alphabet's sprawling operations include Google Search, Google Cloud, YouTube, and Waymo (an autonomous driving technology company), among others. Notably, Alphabet's Gemini AI model is considered industry-leading, and the company is also a major investor in Anthropic, which offers another top-tier AI model, Claude.
"Nvidia is a great company, but it has the potential to be far more cyclical should AI spending slow down," O'Neill said. "Alphabet is so diversified that if one business falters, the others can pick up the slack. You can't get a wider competitive moat than Alphabet has, and it seems like THE company of the internet era. So it would make sense if it were the biggest.
In Alphabet's history, it briefly surpassed Apple as the most valuable company in early 2016. As of last Friday, Apple's market cap was US$4.3 trillion, ranking third globally, followed by Microsoft (US$3.1 trillion) and Amazon (US$2.9 trillion).
The latest earnings season has demonstrated how Alphabet stands out as a winner among tech giants. Its search and cloud businesses not only beat growth expectations, but its AI chip, the TPU, has also become a key customer draw. Google CEO Sundar Pichai said that Google Cloud customers will soon be able to run these chips in their own data centers.
In a note to clients on May 5, Citizens analyst Andrew Boone wrote that he expects Alphabet to generate about US$3 billion in revenue from TPU-related infrastructure in 2026, and US$25 billion in 2027.
"Alphabet just has everything you want, and that's why everyone is so comfortable owning it, because it has so many ways to win within AI," said Divyaunsh Divatia, a research analyst at Janus Henderson Investors. "Between search, chips, cloud, YouTube, and Gemini, it makes money from so many sources. I still like Nvidia, which remains a very strong company, but it is just a chipmaker."
Alphabet's ascent marks a stunning reversal.
Less than a year ago, investors were dumping its stock, fearing that its core search engine business would be a victim of AI disruption. That began to change as Alphabet integrated AI into Google Search and Gemini became one of the most popular AI chatbots.
Now, Wall Street analysts are rapidly raising earnings estimates. According to compiled data, consensus expectations for Alphabet's net profit this year have been raised about 19% over the past month, with 2027 forecasts up more than 7%.
"Google is one of the two best-positioned AI companies because they own most of the stack," said Gene Munster, managing partner at Deepwater Asset Management.
After Alphabet's earnings report late last month, JPMorgan analysts called the stock their "top pick" in the tech sector, citing a strong quarter, accelerating growth, and a near-doubling of cloud order backlog to US$462 billion.
Mizuho analysts also raised their price target for Google, arguing that current consensus expectations still significantly underestimate Google Cloud's revenue and operating profit over the next two years.
Of course, despite Wall Street's enthusiasm, sustaining Alphabet's red-hot rally may not be easy.
Currently, the average 12-month price target among analysts is about US$422, just 5.4% above last Friday's closing price. The stock has already gained 160% over the past 12 months.
Moreover, Gemini and other top AI models face the risk of being overtaken by rivals. Alphabet's struggles last year demonstrate just how quickly market sentiment can shift in the AI era.
In some analysts' eyes, another major concern for Google is how much of its cloud order backlog comes from Anthropic. This loss-making, high-valuation startup is raising tens of billions from Google, only to spend most of it on Google's cloud services and TPUs. D.A. Davidson analyst Gil Luria said this dynamic is reminiscent of what happened with Oracle. Oracle's stock surged after reporting nearly 360% growth in order backlog last September, but soon it became clear that most of it came from OpenAI.
Luria sees a concentration risk among major cloud providers. The reported cloud order backlogs of Microsoft, Oracle, Amazon, and Google total nearly US$2 trillion. Luria says nearly half of that can be traced to commitments from OpenAI and Anthropic — both of which are seeking funding from the same companies.
This heightens the pressure on Google to deliver a blockbuster showing at its Google I/O conference in less than two weeks. Google needs to clarify its Gemini agent strategy and demonstrate sustainable revenue from the broader AI ecosystem.
Currently, Alphabet trades at a forward P/E ratio of 28. While far from the "crazy valuations" of the dot-com bubble, that's well above its 10-year average of less than 21 and close to the highest levels since 2008.
Still, regarding Google's current position, O'Neill said, "Even if we're not getting it for a song anymore, it isn't unreasonable to think it can maintain or even grow this multiple... We wouldn't hesitate to buy it for new accounts."
To illustrate, he quoted Warren Buffett, who said it's "far better to buy a wonderful company at a fair price than a fair company at a wonderful price." As a tacit endorsement, Buffett's Berkshire Hathaway bought Alphabet shares last year, a rare tech investment for the famed value investor.
"Even if it isn’t screamingly cheap anymore, this is a fair price," O'Neill said. "It is unquestionably a wonderful company."
In a post-earnings report, Argus analysts said the risks associated with Alphabet's (GOOGL) massive capital expenditure (capex) spending are "salient". But they maintained a "buy" rating on the stock, arguing that the company's ability to fund such spending relative to rivals like OpenAI is a "competitive advantage."
(With input from Bloomberg, CNBC)
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