Why Alphabet Could Outshine Nvidia in the 2026 AI Race

Alphabet, the parent company of Google, is emerging as a formidable player in the artificial intelligence (AI) landscape, positioning itself as a potential challenger to Nvidia's dominance in 2026. While Nvidia has been a standout performer in the AI sector, Alphabet's strategic investments and innovations in AI technologies are setting the stage for a competitive showdown.

Nvidia's meteoric rise has been fueled by the surge in AI infrastructure spending, particularly in the development of large language models. The company's GPUs have become the go-to solution for training these models, solidifying its market leadership. However, Alphabet is rapidly advancing its AI capabilities, leveraging its Google Cloud division and custom-built Tensor Processing Units (TPUs) to challenge Nvidia's supremacy.

Alphabet's AI Momentum in 2025

In 2025, Alphabet made significant strides in AI, with its Google Cloud division achieving a 34% revenue growth and an operating margin of 24%. This growth was underpinned by a $155 billion backlog at the end of the third quarter, a 46% year-over-year increase. Alphabet's AI-powered search features, such as AI Overviews and AI Mode, have enhanced user engagement and revenue, contributing to a 15% increase in Google Search revenue in the third quarter.

YouTube, another key revenue driver, saw a 15% revenue growth in the most recent quarter, driven by AI tools that improve video editing, thumbnail creation, and product identification in videos. These innovations have not only boosted engagement but also monetization, positioning Alphabet to continue its growth trajectory into 2026.

TPUs: A Game Changer for Alphabet

Alphabet's custom-built Tensor Processing Units (TPUs) are emerging as a cost-efficient alternative to Nvidia's GPUs for AI training and inference. Anthropic plans to adopt TPUs for some of its workload starting in 2026, and Alphabet is reportedly in discussions with Meta Platforms to integrate TPUs into their operations. This shift could erode Nvidia's market share, as TPUs offer competitive performance and cost advantages.

The relative performance of TPUs is expected to drive significant growth for Google Cloud in 2026, with substantial margin improvements. Alphabet's ability to innovate and deploy its AI technologies across its ecosystem gives it a competitive edge, particularly as companies seek more cost-effective AI solutions.

Alphabet's Waymo, its self-driving car business, is also contributing to its growth story. Waymo completed 14 million trips in 2025, more than triple the number from the previous year. With plans to expand to 20 new cities and achieve 1 million rides per week by the end of 2026, Waymo is poised to become a key revenue driver for Alphabet.

In contrast, Nvidia faces challenges in maintaining its current growth trajectory. While the company has benefited from the AI spending boom, increasing competition from TPUs and other custom AI accelerators could limit its market share. At its current valuation, Nvidia will need to exceed already high expectations to deliver returns comparable to recent years.

Alphabet's diversified growth across hardware, software, and real-world AI applications positions it as a strong contender to outperform Nvidia in 2026. With a valuation of less than 30 times forward earnings expectations, compared to over 40 times for Nvidia, Alphabet presents a compelling investment opportunity in the AI sector.