Google rose to the top in the AI race. Here's what it'll take to stay there.

By Christine Ji

Alphabet took the title as this year's top-performing 'Magnificent Seven' stock, but the AI competition is fierce

Google Gemini grew to 650 million monthly active users this year and gained market share against OpenAI's ChatGPT.

Alphabet established itself as a household artificial-intelligence name this year as its Gemini frontier model and cloud business grew rapidly. Now the company needs to maintain its leading role.

Shares of Alphabet (GOOGL) (GOOG) are on track to become the best annual performer within the "Magnificent Seven" for the first time, gaining 65.6% since the beginning of the year through Friday. But Alphabet can't afford to rest on its laurels. The company spent the year dismantling the narrative that OpenAI's ChatGPT had killed Google Search, and it will need to continue innovating and securing landmark deals to stay in the spotlight.

Adoption of Gemini has become a key signal for Google's position in the AI race, and investors will be looking for Google to continue growing the amount of Gemini users going into next year. Bank of America's Justin Post wrote in a December note that "we see potential for Gemini to be seen as a demand generator for Search and Google Cloud."

Also read: As ChatGPT turns 3, here's what's crashing the party

The image-editing feature Nano Banana helped Gemini climb in popularity earlier this year. An upcoming catalyst could be the rumored overhaul of Apple's (AAPL) Siri powered by Gemini, which is reported to be valued at $1 billion annually according to a Bloomberg report. A deal with Apple would help Gemini gain a leading position among mobile devices, according to Post.

Additionally, AI Overviews and Chrome's AI Mode have mitigated concerns that AI chatbots could harm Google Search, and increased "confidence in Google Search's ability to grow (rather than just defend) its share of the search market," HSBC analyst Paul Rossington wrote in a December note. As of November, AI Overviews reached two billion monthly active users and the Gemini app reached 650 million monthly active users.

Beyond the success of Gemini, investors have been drawn to Alphabet's full-stack AI strategy, meaning that the company owns every layer of the technology from the infrastructure to the applications. Alphabet has access to massive datasets from Search, YouTube and Android. It's an advantage that has helped Alphabet dominate the AI ecosystem and could also insulate it from a potential bubble burst, many investors believe.

Read on: These two 'Magnificent Seven' stocks could be the strongest survivors of an AI apocalypse

Alphabet's custom tensor processing units also gave the company an AI advantage in 2025, as the company began a strategic shift of deploying its custom silicon for customer use. In October, Google secured a deal to provide Anthropic with up to one million TPU chips. It's also reportedly in talks to rent its hardware to Meta Platforms (META) as part of a potential initiative to capture up to 10% of Nvidia's (NVDA) chip sales.

D.A. Davidson Gil Luria estimates that Google's TPU and DeepMind business alone could be worth nearly $1 trillion, making it one of Alphabet's most valuable businesses.

The momentum has led some to wonder if Alphabet's TPUs will materially impact Nvidia and drive down costs for AI hardware. The custom-silicon landscape is also becoming more competitive: Amazon.com (AMZN) recently announced its Trainium3 chips, and Microsoft (MSFT) is reportedly debuting its own chips sometime in 2026.

Should Alphabet successfully capture 10% of Nvidia's revenues, it could add around 6% to its market capitalization, according to HSBC's Rossington. A deal with Meta would be "another strong endorsement for Google TPUs and positive driver for Alphabet valuation multiples," Post wrote.

Although Alphabet semiconductor business is a promising driver for the stock, Michael Sansoterra, chief investment officer at Silvant Capital Management, thinks the 10% goal is aspirational but "unlikely."

"There's no reason they both can't be successful," Sansoterra told MarketWatch recently. "That rising tide will lift all boats, but nobody is going to completely unseat Nvidia in the interim."

Some believe Alphabet has the potential to overtake Nvidia by market capitalization in the coming year. On Polymarket, the odds of Alphabet becoming the largest company in the world by December 2026 are 29%, second to Nvidia's 45% odds.

Read: How Google could follow Nvidia to become the next $5 trillion company

-Christine Ji

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12-29-25 0818ET