Alphabet (NASDAQ:GOOG) is the stock most favorably positioned for the next phase of artificial intelligence, according to Bank of America, as investor attention shifts away from sheer capital spending and toward monetization, returns and sustainable competitive advantages.
In a broad assessment of AI investment and revenue potential among hyperscalers, BofA analysts said expectations around AI capabilities, incremental revenue generation and returns on capital expenditure will remain key drivers for mega-cap internet stocks through 2026.
The bank noted that although AI-related capital spending is accelerating rapidly, the largest technology platforms continue to generate enough operating cash flow to fund these investments, while also using debt markets to maintain balance-sheet flexibility.
Within this landscape, Alphabet stands out as “best positioned across all segments,” supported by strengths spanning foundational AI models, proprietary silicon, enterprise cloud infrastructure and global consumer distribution, analysts Justin Post and Nitin Bansal wrote.
Bank of America estimates that AI could unlock more than $1 trillion in incremental revenue over the next five years. That opportunity includes roughly $500 billion from cloud services as enterprises roll out generative AI workloads, around $400 billion from digital advertising as AI enhances targeting, measurement and return on ad spend, and more than $200 billion from AI-driven subscription offerings across both consumer and enterprise markets.
This revenue upside comes alongside a sharp increase in capital investment. Aggregate capex among the largest hyperscalers is forecast to climb from $154 billion in 2023 to over $600 billion by 2027.
While BofA expects forward-looking returns on capex to be lower than in earlier investment cycles, the bank still sees a favorable long-term value creation environment, provided companies can improve efficiency through tighter operating cost control and lower computing costs.
Custom silicon is highlighted as a critical tool to help offset margin pressure as depreciation and infrastructure intensity rise. The analysts estimate that incremental EBITDA generated in the year following investment should exceed 20% of the original capex, suggesting returns can remain attractive even if revenue-to-capex ratios decline from historical levels.
Alphabet’s advantage, according to BofA, stems from four structural strengths likely to define AI leadership in the years ahead: frontier model leadership, consumer distribution, enterprise distribution and custom silicon.
The firm views Alphabet as the only company with strong positioning across all four areas, supported by the development of its Gemini models, growing demand for Tensor Processing Units (TPUs), a scaled enterprise cloud platform and multiple consumer-facing products that enable both AI training and monetization.