From Laggard to Leader: How Google’s AI Surge Is Rewriting the Race With OpenAI

Google’s position in the artificial intelligence race has undergone a sharp reversal, with investors and analysts now viewing the company as a frontrunner rather than a follower, after a strong earnings report and an ambitious expansion of its AI investments.

Just a year ago, Alphabet, Google’s parent company, was widely seen on Wall Street as struggling to keep pace with OpenAI, whose ChatGPT had captured public imagination and enterprise demand. That perception weighed heavily on Google’s stock through much of early 2025. This week, however, the narrative flipped.

A confident earnings call marks a turning point

On Alphabet’s fourth-quarter 2025 earnings call, executives struck a notably different tone from previous quarters. It was the first earnings call since the launch of Gemini 3, Google’s latest flagship AI model, which analysts and users say has significantly closed the gap with competing systems.

Chief executive Sundar Pichai told investors that Google is now seeing tangible returns from years of AI investment. “We’re seeing our AI investments and infrastructure drive revenue and growth across the board,” he said, emphasizing that AI is no longer confined to experimental products but embedded across Search, YouTube, and Google Cloud.

Alphabet reported quarterly revenue of roughly $113 billion, up about 18 percent year on year, while profit rose nearly 30 percent to $34.5 billion. The results beat market expectations and reinforced the message that AI is becoming a core growth engine rather than a cost burden.

AI growth spreads across Google’s businesses

Unlike earlier phases of the AI boom, where success was measured by chatbot adoption alone, Google’s latest results show AI contributing across multiple business lines:

• Search revenue rose around 17 percent, supported by AI-enhanced results and more effective ad targeting.
• YouTube revenue increased about 9 percent, with Gemini helping improve recommendations and viewer engagement.
• Google Cloud revenue jumped 48 percent year on year, driven by a surge in demand for AI infrastructure and services.

Executives said Google signed more billion-dollar AI-related cloud contracts in 2025 than in the previous two years combined, underscoring growing enterprise confidence in its platform.

A capex super-cycle signals long-term commitment

Alongside the strong results, Alphabet signaled it could nearly double capital expenditures in 2026 to between $175 billion and $185 billion. The spending will be focused largely on AI compute infrastructure, including custom Tensor Processing Units, data centers, and networking.

The size of the planned investment initially rattled markets, with Alphabet’s shares falling as much as 6 percent in after-hours trading. The stock later stabilized as investors digested the scale of AI-driven revenue already flowing through the company.

Analysts have described the move as the start of an AI “capex super-cycle,” aimed at locking in long-term leadership rather than chasing short-term margins.

Gemini challenges ChatGPT’s dominance

Reuters reported that Google’s Gemini app reached about 750 million monthly active users by December, up from 650 million in the previous quarter. While that figure still trails OpenAI’s ChatGPT, which has been cited by its leadership as exceeding 800 million weekly active users, the rapid growth has altered investor perceptions.

Fund managers quoted in recent coverage say the market is increasingly favoring Google’s diversified AI strategy over OpenAI’s more concentrated model. Alphabet’s ability to fund AI expansion through internal cash flow, combined with its ownership of critical infrastructure such as chips and data centers, is seen as a key advantage.

Shifting sentiment toward OpenAI

At the same time, OpenAI’s close ties to partners such as Microsoft and Oracle are drawing scrutiny. While those relationships have enabled rapid scale, some enterprise customers and investors are becoming wary of heavy dependence on a single AI vendor and its infrastructure partners.

A year ago, every new OpenAI partnership was greeted with enthusiasm. Now, analysts say, the question being asked is how concentrated AI exposure has become, and whether alternatives like Google offer a more balanced long-term bet.

A broader shift in the AI race

The latest earnings season suggests the AI race is entering a new phase. Rather than rewarding the most visible product or the fastest demo, markets are increasingly focused on who can turn AI into durable, company-wide growth.

For Google, the shift from perceived laggard to emerging leader has been driven by proof points in revenue, scale, and infrastructure. Whether the momentum can be sustained remains an open question, especially as spending accelerates. But for now, the company appears to have regained investor confidence in its ability not just to compete in AI, but to shape its future.