Alphabet Rockets Ahead of OpenAI in AI Race, Upending Wall Street Expectations

Alphabet is taking a more aggressive stance in the artificial intelligence (AI) race, reflecting Wall Street’s belief that the company’s investments are already yielding substantial returns across its operations. This turnaround contrasts sharply with last year’s perception where investors saw Alphabet lagging behind rivals and punished its stock accordingly.

On Wednesday, during an earnings call, Alphabet executives emphasized their confidence by highlighting a key shift: AI investments have now begun to produce results throughout the entire organization. This success has prompted the company to potentially double its capital expenditures in 2026—ranging from $175 billion to $185 billion—to bolster its AI computing capacity.

CEO Sundar Pichai highlighted this transformation, stating that “AI investments and infrastructure are now driving revenue and growth across all business units.” The company’s newly confident messaging underscores a significant change: Whereas previously focused on specific product usage in the cloud unit, Alphabet now asserts that AI investments benefit Google directly.

Alphabet’s optimism is bolstered by its consumer and enterprise businesses. Pichai pointed out that the Google Gemini app exceeded 750 million monthly active users as of December, up from 650 million a quarter earlier. Although still trailing OpenAI’s ChatGPT (which had surpassed 800 million weekly active users), Gemini’s growth indicates increasing engagement with the product.

Moreover, Gemini has been integrated into “AI Mode” within Google’s search engine and powers an enterprise version of the app that Pichai reported to have reached 8 million paying licenses.

These strong performance indicators initially shook investors, sending Alphabet’s stock down by as much as 6% in after-hours trading. However, subsequent positive updates from Google Cloud—the unit responsible for these new gains—restored Wall Street’s confidence, showing a robust revenue increase of 48% during the December quarter.

Since the beginning of last year, Alphabet has ascended from being a laggard to becoming a leader among the “Magnificent Seven” megacap companies. This status is matched only by Nvidia and Apple within firms over $4 trillion in market capitalization.

Despite forecasting a relatively modest increase in capex for 2026, Microsoft’s stock took a significant hit last week due to heightened concerns about its reliance on OpenAI. As an investor with substantial stakes in OpenAI (including a 27% stake and being a major customer), Microsoft’s outlook has soured.

Investors are increasingly favoring Alphabet over rivals like Google and OpenAI, according to analysts. The recent success of companies like Oracle, which holds a $500 billion contract backlog tied closely to OpenAI, underscores this sentiment shift. Conversely, Alphabet’s stock has risen by about 36% since the beginning of October.

The dynamics around OpenAI’s revenue streams also contribute to investors’ shifting views on its viability and potential future funding needs. If companies like Microsoft and Oracle are increasingly dependent on OpenAI for their financial stability, this raises questions about the company’s ability to sustain such commitments without adequate financial backing. As a result, the market is now more inclined towards Alphabet’s strategy of leveraging AI investments across multiple platforms.

In summary, Alphabet has managed to pivot its investment strategy, leading to substantial returns and confidence from both investors and industry analysts. Its aggressive approach in the AI space appears to be resonating with the market, despite modest capital spending forecasts for 2026.