Identifying which AI stock has the most potential in 2026 and beyond is no simple task. If your timeframe after 2026 is only a few years, then an AI infrastructure company like Nvidia (NVDA +1.91%) may be the best option. If your timeframe lasts for a decade after 2026, you may be better off with an application company like Palantir (PLTR +4.74%). However, if you're looking for a bit of a combination between these two options, Alphabet (GOOG +1.83%) (GOOGL +1.93%) is one of the best artificial intelligence stocks to buy and hold.
Alphabet has had a stellar year, rising around 60% so far in 2025. While I don't expect that performance to repeat in 2026, I still think it has market-beating potential.
Image source: Getty Images.
Alphabet's core business is thriving
Alphabet's primary business is the Google Search engine. At the start of 2025, a large majority of investors assumed that generative AI technologies would replace Google. However, Alphabet saw the writing on the wall and made swift changes. The biggest innovation was the integration of AI search overviews in Google Search. This provides nearly every search result with a generative-AI-powered summary at the top of the page, giving the user a hybrid experience. For many users, this will be the most AI capabilities that they need. For others, its generative AI model, Gemini, has emerged as a top option in the space.
Gemini has risen from the laughing stock of the AI world to one of the best in a year. Gemini's improvements were so impressive that they forced OpenAI, the makers of ChatGPT, to declare a "code red" at the company. That's a long way from where Gemini was viewed entering 2025, and the change in fortunes for both its Google Search business and the progress of its generative AI model can be thanked for its stock performance.
NASDAQ: GOOGL
Key Data Points
Another area that boosted Alphabet's stock was the performance of its cloud computing division, Google Cloud. Google Cloud is building out excess computing capacity to rent out to those who cannot build their own data center. Within Google Cloud, Alphabet provides access to its custom Tensor Processing Unit (TPU), which can outperform graphics processing units (GPUs) when the workload is properly configured. These computing units have been Alphabet's secret weapons in training its cutting-edge generative AI models, and locking access to them behind one of its other business units is genius. However, Alphabet may be dipping its toes into alternative territory.
Reportedly, Alphabet is considering selling its TPUs to Meta Platforms (META +2.25%) outright instead of requiring them to rent access to them via Google Cloud. That's a step in a different direction for Alphabet, and could result in a new revenue stream that investors haven't accounted for. The AI computing market is massive, and if Alphabet can secure a sliver, it could provide serious growth for Alphabet.
Time will tell if this business venture pans out, but Alphabet is doing incredibly well as a company. It's also responsibly spending, which is something that not every company can say.
Alphabet has plenty of cash to fund its buildouts
One of the growing concerns in the AI realm is a potential bubble forming around AI computing capacity buildout. There are questions about how AI hyperscalers will fund it, which is a perfectly acceptable question to ask of a company like OpenAI. However, Alphabet has plenty of cash flows to continue building data centers as it pleases.
The two metrics inventors in this realm should familiarize themselves with are operating cash flow and free cash flow. Operating cash flow is all of the cash that a business produces, which can be used to fund capital expenditures. Free cash flow subtracts capital expenditures, which shows the remaining cash a business has to repurchase shares, pay down debt, or fund dividends.
GOOGL Cash from Operations (TTM) data by YCharts
Alphabet has plenty of cash to continue spending on AI data centers if it chooses, which is a great position to be in. While Alphabet is spending a lot of its cash on buildouts, it has plenty left before it risks dropping into the negatives. That's a massive advantage Alphabet has over nearly any other competitor in the AI arms race, and it's the primary reason why I think Alphabet is one of the best AI stocks to buy in 2026 and hold for several years after.
