This Search King Just Proved It Can Still Get Good Results

Author

Noah Zelvis
January 03, 2026

The market spent most of the year asking if AI would replace the old internet business model.

By year-end, the answer looked more like “upgrade it.” The stock ripped higher anyway, and now expectations are the new boss fight.

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What Just Happened

Alphabet (GOOGL) wrapped up 2025 with its strongest year since 2009, up about 65% and beating most megacap peers.

The rally followed a rough first quarter, then a steady rebuild in confidence as AI products gained traction, search fears cooled, and the regulatory overhang looked less catastrophic than investors had modeled.

That last point matters. When a stock goes from existential risk to still the default, the multiple can expand fast.

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The Business

Alphabet is still the internet’s biggest profit engine, built on a few core pillars:

  • Search + ads: the cash machine, and still the center of the story

  • YouTube: a second ad flywheel with subscription upside

  • Cloud: a fast-growing business that benefits directly from enterprise AI demand

  • Other bets: a portfolio of optionality, including autonomy

AI isn’t a separate product line here. It’s a layer that touches everything: what users do, what advertisers buy, how developers build, and how enterprises spend.

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Why The Stock Ripped

1) AI Execution Started to Look Real

This year wasn’t just research demos. It was product cadence and distribution.

Gemini updates, better consumer features, and broader AI integration helped shift the narrative from playing defense to setting the pace.

2) Search didn’t Collapse, it Adapted

The core fear was that users would move queries to chatbots and the ad engine would weaken.

Instead, Alphabet pushed AI deeper into search experiences, aiming to keep engagement inside the ecosystem.

The market began focusing on one practical question: can AI improve answers while preserving monetization?

3) Regulatory Risk Looked More Manageable

Alphabet still faces antitrust pressure, but the harshest outcomes that were floated earlier did not become the base case. That removed a big tail risk discount.

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The Setup In The Stock

At around $313 with a ~31 P/E, this is no longer a “cheap megacap” story. It’s a “great business, high expectations” story.

That’s not bearish by default. It just means the upside from here depends on execution, not a narrative bounce.

The market already believes the company can compete in AI. Next it wants to see AI show up in revenue durability and margin outcomes.

Why Bulls Still Care

The Distribution Moat is Still Massive

Search, Android, Chrome, and YouTube give Alphabet default placement in daily behavior. That matters because distribution is the hardest thing to replicate in tech.

Cloud is a Real Second Engine

If AI demand keeps pushing enterprise compute spend, cloud can be a direct monetization channel for the AI buildout.

Multiple Ways to Win

Even if one lane slows, Alphabet has several levers: ads, cloud, subscriptions, hardware, and longer-dated optionality like autonomy.

Why Bears Still Worry

Spending is the 2026 Headline Risk

AI requires huge capex. The risk is not that the company can’t spend.

The risk is that the market decides the spending is outpacing monetization, which compresses the multiple even if the business stays healthy.

AI Changes the Economics of Search Over Time

Even if engagement rises, AI answers can change user behavior, click patterns, and ad formats. The transition can be messy before it becomes accretive.

Competition Stays Intense

OpenAI and Microsoft are obvious, but the broader shift is that “answers” and “discovery” are being rebuilt across the internet. Alphabet can still win, but it won’t be uncontested.

What To Watch Next

  1. Search revenue trend into the next earnings report
    If search growth holds or accelerates, the market will keep rewarding the stock. If it slows, investors will question whether AI is diluting monetization.

  2. Cloud growth and margin trajectory
    Cloud is where AI demand can turn into tangible dollars. Strong growth plus improving profitability is the cleanest confirmation signal.

  3. Capex guidance and discipline
    Investors don’t need capex to fall. They need confidence that spending is aligned with demand and translating into durable returns.

  4. Regulatory headlines that threaten distribution
    Most noise will be shrugged off. Anything that impacts default placement, bundling, or data advantages will matter.

How I’d Think About Position Size

This is closer to a premium compounder than a comeback trade.

  • Starter (1–2%) if you want exposure but respect the high bar after a monster year

  • Add (up to 3–4%) only if you see confirmation in search stability, cloud momentum, and spending discipline

  • Brake lights if capex keeps rising while growth softens, or if regulatory developments threaten distribution economics

The Bottom Line

2025 was the year Alphabet flipped the AI narrative from threat to advantage. Now 2026 becomes the proof year.

If search stays resilient, cloud keeps compounding, and the spending converts into repeatable profit growth, the stock can still work even after a huge run.

If monetization lags the buildout, expectations can turn from tailwind to headwind fast.

Action Recap

✅ Starter: small exposure with expectations already high
✅ Add On Proof: search stability + cloud strength + disciplined spend
⚠️ Trim On Trouble: growth softens while investment intensity rises

That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.

Best Regards,
—Noah Zelvis
Tech Stock Insider