Prediction: This Artificial Intelligence (AI) Stock Will Be the Biggest Winner of 2027

In my view, artificial intelligence (AI) stocks will once again help the stock market rise in 2027. However, I think investors will start moving away from companies that mainly sell the equipment needed to build AI systems and toward the large cloud companies that control most of the spending. Given this change, I think Alphabet (GOOGL -1.62%) (GOOG -1.62%) could be the best-performing stock among the biggest AI companies in 2027.

When a new technology is still in its early stages, hardware companies that build the tools and equipment needed to support it often get a large share of the profits. But as the technology develops, more of the gains should go to companies that use that equipment and benefit from the investments already made.

We saw this pattern during the dot-com boom. Hardware companies such as Cisco, Sun Microsystems, and JDS Uniphase led the early work to build the internet's infrastructure. But over time, companies such as Amazon and Google, now part of Alphabet, gained most of the total economic value created by the internet.

I think a similar change could begin next year, with Alphabet in a strong position to benefit more than its rivals. One major difference between the dot-com era and today's AI era is that some of the companies paying to build the infrastructure are also creating the apps and platforms that people use. In the late 1990s, telecom companies did most of the work to build the infrastructure. Today, the large cloud companies are doing much of that work themselves. This is also a major reason these companies have increasingly started designing their own chips, and Alphabet stands out in this area.

When companies first build infrastructure for a new technology, supply and demand are often badly out of balance. In the current AI boom, this has given semiconductor companies a lot of power to set prices. The memory chip market is a clear example. A shortage of memory chips has pushed prices to record levels. But over time, supply chains usually return to normal, production increases to meet demand, and hardware prices fall. Investors have already started to consider the possibility that this will happen.

Multiple advantages

As we enter this middle stage, Alphabet has a major advantage because it has built its entire system around its own powerful Tensor Processing Units (TPUs), which are chips it designed itself. These chips help Alphabet spend less money on training its own AI models and running inference workloads, which involve using a trained AI model to produce answers or results. They also give Alphabet a strong long-term cost advantage in cloud computing.

When Alphabet uses its own chips, it earns back the money it invested in them in about one year. Its rival Amazon takes two to three years. Getting that money back in just one year allows Alphabet to use its operating cash flow to expand its data centers much faster than competitors that depend more on Nvidia graphics processing units (GPUs) and take longer to recover their costs. Alphabet's chips are so highly regarded that the company, working with its chip design partner Broadcom, also sells them directly to Anthropic, which urgently needs computing power. This gives Alphabet another source of high-margin revenue.

Ultimately, Alphabet could be one of the biggest winners in AI because it controls every major part of the AI system. It starts with its own chips and its leading AI model, Gemini. It also has its own cloud platform, Vertex AI, and cloud security solution, Wiz. On top of that, it owns major consumer products such as Google Search, YouTube, and other apps. Alphabet can add Gemini to these products to make them better and help them grow.

Alphabet also controls much of the way people access the internet. It owns the Chrome browser and the Android operating system. It also has an agreement that pays it a share of revenue in exchange for making Google Search the default search engine on Apple devices. This puts Alphabet in a key position to connect people to the internet and, increasingly, to AI services. Finally, it controls a major part of online advertising. Its advertising network makes it easier to earn money from AI products aimed at consumers.

Together, these advantages create a powerful cycle in which Alphabet's AI investments can help its products grow, generate more revenue, and support further investment. I think the value of this advantage will become even clearer next year. That is why I believe Alphabet will be the best-performing AI stock among the largest companies in 2027.