Where Will Alphabet Stock Be in 5 Years?

Conditions are looking good for Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). The Google parent's stock is up as the company dispelled doubts that its Google Gemini model could compete with the likes of ChatGPT and Claude.

Moreover, despite it more than doubling over the last 12 months, it is likely not too late to invest in this "Magnificent Seven" stock. Amid its successes with AI, Alphabet is likely to outperform the market over the next five years, and here's why.

Image source: The Motley Fool.

The reemergence of Google and its AI

Investors should remember that Google was an AI pioneer since its early days, having launched its first AI-driven application in 2001. Nonetheless, despite that longstanding focus, Alphabet's outlook did not look so rosy after OpenAI released GPT-4 in the spring of 2023. That platform offered simpler, clearer responses to queries not found on a traditional search engine like Google.

Worse, since ChatGPT does not take users directly to websites, many analysts began to question whether Google's digital ad model, which AI models often bypass, could continue to hold. Although Alphabet has worked to diversify its revenue stream away from digital ads, Google Advertising still accounted for 70% of its total revenue in the first quarter of 2026.

However, Google search began returning AI overviews. Moreover, the release of Gemini 3 convinced many users that it could compete with ChatGPT and Claude. It has also helped to stoke faster growth with Google Cloud, which accounted for 18% of total revenue in Q1.

Such gains likely influenced Warren Buffett successor Greg Abel to make Alphabet the presumed No. 3 holding of Berkshire Hathaway. Also, that market leadership may have helped lead to Alphabet's recent inclusion in the Dow Jones Industrial Average.

Furthermore, over the next five years, another Alphabet-owned AI ecosystem should gain more prominence. Industry experts perceive the company's autonomous driving system, Waymo, as one of the top platforms. Assuming it can build on that reputation, autonomous driving could become a major new revenue source over time.

Alphabet is reporting financial improvements

AI has already helped Alphabet improve its revenue growth. In Q1, revenue rose by 22%, far above the 12% increase reported in Q1 2025.

Much of the gain came from a 63% yearly revenue increase for Google Cloud. Moreover, Alphabet did not report any financial results for Waymo, suggesting revenue could continue to grow quickly as autonomous driving becomes more prevalent.

Investors should note that many of its gains stemmed from Alphabet's pledge to spend between $175 billion and $185 billion on capital expenditures (capex), mostly to further develop and support its AI. Despite holding $127 billion in liquidity, it raised nearly $32 billion in additional debt earlier this year to help bankroll that spending.

Despite those costs, investors seemed to have dismissed that headwind as its AI spending has already led to higher revenue. Also, the fact that it generated $64 billion in free cash flow (excluding capex) over the trailing 12 months suggests that investors are comfortable with the added debt.

Finally, even with the rising stock price, its P/E ratio stands at 27. That is below four Magnificent Seven stocks and the S&P 500 average of 32, offering investors a slight discount and likely indicating that the stock has plenty of room to run in the coming years.

Alphabet in five years

As investors can see, Alphabet stock is surging, and despite those gains, it could still outperform the market over the next five years.

Indeed, Alphabet continues to spend staggering sums on capex. Furthermore, on the surface, raising money through debt may appear strange given its huge cash hoard and massive free cash flows.

Nonetheless, the heavy capex spending seems to have paid off in terms of Gemini's market leadership and the company's faster growth. This could continue for years as the rising prevalence of autonomous driving turns Waymo into a major revenue source.

Additionally, its 27 P/E ratio seems modest given Alphabet's spike in revenue growth. As Alphabet continues to cement its AI leadership, those efforts should increase the company's revenue and, more than likely, boost its stock price at market-beating levels.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.