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Investors who decided to buy Alphabet (NASDAQ:GOOG) shares at the start of 2025 have done incredibly well. The stock’s up 61% since the beginning of January.
Heading into 2026, the company’s probably in a stronger position than it was 12 months’ ago. But the rising share price seems to be starting to bring out some people’s inner value investor.
The investment equation
On the face of it, Alphabet shares are much less attractive than they were at the start of the year. The price-to-earnings (P/E) ratio the stock trades at has gone from 23 to 30. That doesn’t mean it’s overvalued, but it does mean investors are much more optimistic about the company’s future growth. And that usually makes for a less attractive buying opportunity.
Investors might therefore think the time to buy Alphabet shares has passed. But the company’s in a stronger – in my view, much stronger – position than it was at the start of the year.
Back in January, the firm was facing an antitrust lawsuit for maintaining an illegal monopoly. It had already been found guilty and the question was what the consequences would be. Several investors took the view that not much was going to happen and they’ve been proven right. But that doesn’t mean the risk wasn’t real, or that it shouldn’t have been taken seriously.
For the time being, that threat’s off the table and is a big reason why the stock’s trading higher. There are, however, other potential risks that investors need to think about in 2026.
AI expenses
The investing theme of 2025 has been artificial intelligence (AI) and Alphabet’s been at the centre of it. Strong growth in Google Cloud has been another force pushing the stock higher. Investors however, are starting to wonder about AI profitability. And that raises two separate issues for Alphabet in the context of the leading position it’s been establishing in 2025.
The first is its heavy investment in AI data centres. Some of this has been financed with debt and the stock market’s just starting to wonder whether this is a good idea.
Alphabet isn’t alone in this – Amazon and Microsoft are in a similar position. But other companies facing similar challenges doesn’t make the stock any more attractive.
The second is AI search. Gemini’s taken the lead over ChatGPT, but queries are much more expensive than traditional search and this raises questions about profit margins.
Neither issue is likely to capsize the company heading into 2026. But both are issues that investors need to take seriously in the context of the stock’s current valuation.
Risks and rewards
There are always risks when it comes to investing in businesses and Alphabet’s no exception. The question for investors is whether these are worth the potential rewards.
At the start of January, I think the stock market was underestimating the potential threat from the firm’s antitrust case. But the company has emerged largely unscathed.
Looking ahead, the next challenge for Alphabet is to turn AI investments into profits. And at a P/E ratio of 29, my view is that there are more attractive AI opportunities to consider.
