Alphabet, the parent company of Google, is the stock best positioned to benefit from the next phase of artificial intelligence, according to Bank of America. The bank says investor attention is shifting away from pure capital spending intensity toward monetization, returns on investment, and sustainable competitive advantages.
In a broad analysis of AI spending and revenue potential among hyperscalers, BofA analysts said sentiment around AI capabilities, incremental revenue growth, and returns on capital expenditure will remain key drivers for mega-cap internet stocks through 2026.
The bank noted that although AI-related capital expenditure is accelerating, leading hyperscalers continue to generate enough operating cash flow to fund these investments. Many are also tapping debt markets to maintain balance-sheet flexibility.
Within this landscape, Alphabet stands out as “best positioned across all segments,” supported by its strengths in foundational AI models, custom-designed chips, enterprise cloud services, and global consumer reach, analysts Justin Post and Nitin Bansal said.
Trillion-dollar AI revenue opportunity
Bank of America estimates that artificial intelligence could unlock more than $1 trillion in incremental revenue over the next five years.
This includes approximately $500 billion from cloud services as businesses roll out generative AI workloads, about $400 billion from digital advertising as AI enhances targeting, measurement, and return on ad spend, and over $200 billion from AI-driven subscription services across both consumer and enterprise markets.
The revenue opportunity comes alongside a sharp increase in capital spending. Total capex among the largest hyperscalers is projected to climb from $154 billion in 2023 to more than $600 billion by 2027.
While BofA expects forward returns on capital expenditure to be lower than in previous cycles, it still sees favorable conditions for long-term value creation. This outlook depends on companies improving efficiency through tighter operating cost control and lower computing expenses.
Custom silicon key to margins
Analysts highlighted custom silicon as a critical factor in offsetting margin pressure as depreciation costs and infrastructure intensity rise.
They estimate that incremental EBITDA generated in the year following investment could exceed 20% of the original capex. This suggests returns can remain attractive even if revenue-to-capex ratios fall below historical averages.
Alphabet’s advantage, according to BofA, is built on four structural moats expected to define AI leadership in the coming years: leadership in frontier AI models, broad consumer distribution, strong enterprise distribution, and proprietary silicon.
The firm sees Alphabet as the only company with strong positioning across all four areas, supported by the development of its Gemini AI models, growing demand for Tensor Processing Units (TPUs), a scaled enterprise cloud platform, and multiple consumer products that support both AI training and monetization.
