An Inference Tsunami May Be Coming for Google Cloud

Alphabet (NASDAQ:GOOG) stock is officially in correction territory after falling in sympathy with many of its heavy-spending peers in the Magnificent Seven. Undoubtedly, Alphabet is also spending handsomely, but as investors become overly focused on the 2026 spending figure, they risk losing track of the long-term opportunity at hand.

Of course, there are also risks of spending $185 billion, but, at the same time, that seems to be the price of staying at or around the front of the AI frontier model pack. Is it worth it, though? Or will this race be won by a tortoise that’s just moving ahead slowly and cheaply? Time will tell. But one has to think that the big AI spending bill will be priced into the big Mag Seven laggards at some point if it isn’t already.

The Mag Seven is leading the way for the AI compute boom

Either way, I’d much rather be in a Mag Seven titan that’s leading the disruption and moving closer towards being AI-native than be caught flying south with the software names, especially the SaaS companies that can’t seem to catch a break this year!

Indeed, the Mag Seven is a scary place to be when the biggest firms are pushing so many of their chips forward in a big bet that might not pay off quickly enough to save shares. In any case, I think the spenders, especially the hyperscalers, ought to be judged based on their “closeness” to monetization and next-level growth.

Of course, one can look at the latest results and judge the trajectory based on whether AI has worked its way into the numbers yet. But what’s more encouraging, at least in my humble opinion, is the pace of profound AI innovation. We’re talking AI-native platforms that could have the potential, not only to disrupt a specific company’s business model, but to disrupt entire industries or even sectors.

Google stock is too cheap, given its explosive AI growth

Of course, it helps if AI is already starting to move the needle in the present. For Alphabet, its latest quarter saw Google Cloud experience a 48% year-over-year surge. Google’s basically driving at a faster speed than Microsoft (NASDAQ:MSFT | MSFT Price Prediction) now. And that could signify Alphabet is the Mag Seven stock to stash away, even if it means paying a slightly higher multiple for a stock that used to go for a heavy discount. Today, shares of Alphabet trade at 28.0 times trailing price-to-earnings (P/E).

That’s cheap, but not Microsoft cheap after suffering a 27% implosion. Microsoft is going for just shy of 25.0 times trailing P/E. And it deserves to go for less than Alphabet when you consider Google Cloud’s strength and the profound AI innovations we’ve witnessed from Google. Undoubtedly, 2026 has been a year that’s horrified the software industry. And Google’s Genie is one such profound innovation that could completely disrupt the gaming segment of the industry.

AI-native platforms could cause an inference wave

Could Google Genie’s world model offer a glimpse of what the future of gaming and maybe even virtual reality will be like? Time will tell. Either way, investors seem to think it’s “game over” for some of the plays in the gaming space.

Whenever you have a firm launching tools or products that cause such a market reaction, you can bet that there’s profound, disruptive innovation to be had. And for Google, I think the stock is being dragged down for no good reason.

Waymo, Genie, and Antigravity, Google’s agentic software development platform, are game-changers. And they could cause a tsunami of inference that perhaps only Google’s TPUs can put up with. The Ironwood TPU is an inference-first piece of hardware that’s ready for the global shift towards inference.

And as more inference-hungry apps come online, my guess is that Google Cloud’s growth spurt has room to the upside. Some firms are bound to run into capacity issues as the inference boom hits. Google might already be miles ahead of the pack in that regard.