The speed of Alphabet’s reversal has surprised many investors, but the more interesting story is how such a dominant business ever became that cheap in the first place, and why the momentum it regained isn’t likely to stall heading into 2026.
Key Points
-
Alphabet’s rally stemmed from deep mispricing, as the market wrongly assumed it was losing the AI race despite strong fundamentals.
-
Gemini integration and TPU advances flipped the narrative, positioning Alphabet as a true AI leader with rising engagement and industry validation.
-
Valuation and growth drivers leave room for more upside, supported by search, cloud, custom silicon, and a rapidly expanding AI ecosystem.
Alphabet Was Misunderstood, Not Broken
Earlier this year, investors fixated on the idea that large language models would erode Google Search’s dominance and drain its ad revenue engine.
What most overlooked was that Alphabet still commands one of the deepest distribution advantages in tech.
Billions of people use Google Search and Chrome every single day, and that level of baked-in behavior doesn’t shift overnight.
Meanwhile, Alphabet’s AI expertise, particularly through DeepMind, was far further along than outsiders appreciated. Its TPU roadmap had accelerated dramatically, with the newest generation roughly 30 times more powerful than the first cloud TPU released in 2018.
The market was looking at what Alphabet wasn’t doing instead of what it was building.
From Supposed Laggard to Emerging Leader
Alphabet’s strategic response to AI disruption was not to reinvent search but to enhance it. By embedding Gemini directly into Google Search and Chrome, Alphabet added AI capabilities without requiring anyone to change their habits. This simple but powerful move kept users inside Google’s ecosystem and prevented defections to rival AI tools.
As the months passed, the narrative began to shift. Gemini adoption surpassed over 600+ million monthly active users, signaling that Alphabet had built one of the fastest-growing AI interfaces in the world.
Berkshire Hathaway initiated a stake, signaling that Buffett’s team viewed the stock as materially undervalued relative to its fundamentals. And Meta began exploring purchases of Google’s TPU chips, proof that Alphabet’s custom hardware was becoming competitive in hyperscale AI environments once dominated by Nvidia.
By late summer, the perception gap had closed. Alphabet wasn’t an AI straggler, it was assembling one of the most complete AI stacks in the industry, consumer interfaces, frontier models, cloud infrastructure, and custom silicon. The debut of Gemini 3 in November simply confirmed what the data had already shown for months.
Why Alphabet Still Has Room to Run
Even after its outsized 2025 rally, Alphabet trades around 30 times forward earnings, similar to Microsoft and Amazon, and not far above Meta. It’s no longer a bargain-bin value play, but it still isn’t priced like a company with multiple new growth engines coming online simultaneously.
Search remains an unrivaled free cash flow generator. Google Cloud continues expanding margins as AI workloads scale. TPUs could open another high-value revenue stream if hyperscalers diversify their compute stacks. And Gemini creates opportunities to reshape how Android, Chrome, and YouTube function in an AI-native world.
Alphabet’s breadth is its advantage. It’s becoming both an AI consumer platform and an AI infrastructure provider, an unusual combination with far more optionality than investors were giving it credit for earlier in the year.
Mispricing Creates the Biggest Upside
Alphabet’s surge is less about AI and more about how fear and perception distort valuations. Alphabet was never structurally broken; it was simply priced as though its future was far dimmer than its fundamentals suggested.
When expectations collapse to near zero, a business doesn’t need perfection to stage a powerful recovery. It only needs the narrative to catch up to reality.
Alphabet didn’t just rebound, it reminded investors that the market often mispriced even the most well-understood companies. And based on its current roadmap, it hasn’t finished rewriting its story.