Alphabet Approaches $5 Trillion: Is Nvidia’s Market Cap Crown Under Threat? Can Google Overtake Nvidia?

Analysis suggests that Google’s valuation rerating is primarily due to the fact that the company covers almost every key link in the AI value chain. Gene Munster, managing partner at Deepwater Asset Management, stated that Google spans chips, models, infrastructure, and distribution channels, and its profitability is also very strong.

In terms of AI chips, although Nvidia remains the leader in the field, Google's proprietary TPU (Tensor Processing Unit) chips are catching up rapidly, even challenging Nvidia's dominance and winning over an increasing number of customers. Google CEO Sundar Pichai stated that TPU chips will soon be available to Google Cloud customers for use in their own data centers, opening up new revenue streams. Citizens analyst Andrew Boone noted in a research report that Alphabet is expected to generate approximately $3 billion in revenue from TPU-related infrastructure in 2026, with revenue projected to explode to $25 billion by 2027.

Regarding models, Google is hedging its bets; its Gemini AI model is already recognized as being in the industry's top tier, yet Google has also increased its investment in Anthropic, the competitor behind the Claude model. In April this year, Google announced a cloud agreement with Anthropic, whereby Google Cloud will provide 5 gigawatts of computing power to Anthropic over the next five years. According to reports in early May, Anthropic has committed to spending approximately $200 billion with Google Cloud over the next five years.

As a hyperscale cloud service provider, although Google was the latest to start, its growth rate has already surpassed rivals Amazon (AMZN) and Microsoft (MSFT) 。Google's latest earnings report, released on April 29, shows that cloud revenue grew 63% year-over-year, and its backlog reached $460 billion, nearly doubling from the previous quarter. In contrast, Amazon AWS grew only 28% year-over-year this quarter, while Microsoft Azure and other cloud services revenue grew by just 40% year-over-year.

Janus Henderson Investors research analyst Divyaunsh Divatia exclaimed that "Alphabet has everything you want," stating that Google has so many ways to win in the AI field: Search, chips, Google Cloud, YouTube, and Gemini... it makes money from so many sources, which is why the market feels so comfortable with it.

Compared to its traditional growth engine, the search business, Wall Street is now paying more attention to Google's performance at the AI infrastructure level; Google Cloud is currently viewed as one of its most core business segments. Mizuho Securities (MFG) forecasts show that by 2027, approximately $61 billion of Google Cloud's backlog could come from TPU sales, with most of that revenue likely to be recognized next year. Google's in-house TPU development has made it the most closely watched AI hardware bet alongside Nvidia.

However, some analysts worry that although Google Cloud's backlog has reached $460 billion, the agreement with Anthropic alone accounts for $200 billion, suggesting a potential concentration risk. DA Davidson analyst Gil Luria noted that this is very similar to what Oracle (ORCL) experienced previously. Oracle saw its stock price surge last year due to a spike in its backlog, only for the market to later discover that the majority of it originated from OpenAI. The downside of overly concentrated revenue sources is that if leading AI model companies like OpenAI or Anthropic face growth setbacks, it will directly impact the cloud vendors' revenue.

But other analysts point out that given the current urgency of computing power demand, even if Anthropic encounters problems in the future, other AI companies will fill the void. Munster stated that the massive deal with Anthropic actually demonstrates that the AI industry is still in its very early stages, with demand for computing power continuing to grow exponentially.

According to data compiled by Bloomberg, the average 12-month target price for Alphabet stock is approximately $422, which is only about 5.4% higher than last Friday's closing price. The stock has climbed a cumulative 160% over the past 12 months. In terms of valuation, Alphabet's current forward price-to-earnings (P/E) ratio is 28x. While this is far from the extreme levels seen during the dot-com bubble, it is significantly higher than its 10-year average of less than 21x and is near its highest historical level since 2008. Does this mean the stock is currently overpriced?

Munster pointed out that the biggest risk for Google currently is that investor expectations have nearly peaked, making it difficult to shift market sentiment with a new narrative. To continue exceeding market expectations and gain upward momentum within the current narrative, Google needs to further clarify its Gemini agent strategy and clearly demonstrate a path to sustained monetization from the broader AI ecosystem. The upcoming Google I/O conference will also be crucial.

Some analysts have also pointed to Warren Buffett's endorsement of the stock: Buffett's Berkshire Hathaway (BRKa) (BRKb) bought shares of Alphabet last year. It is worth noting that Buffett has been selling U.S. stocks in recent years and is known for his increasingly high cash holdings, making this move undoubtedly rare. Luke O'Neill, Chief Investment Officer at CooksonPeirce Wealth Management, stated that this indicates that while Google's price is no longer a bargain, it is still reasonably priced.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.