Search and Cloud Strength Drive Alphabet’s (GOOG) Rally

Soumya Eswaran Thu, August 20, 2026 at 10:30 AM EDT 3 min read **

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Madison Investments, an investment advisor, released its second-quarter 2026 investor letter for the "Madison Large Cap Fund". A copy of the letter can be downloaded here. In the second quarter, U.S. stock market indices achieved their best performance since 2020, driven largely by a narrow group of Artificial Intelligence-related stocks. As in the pandemic's early days, investors are fixated on who will benefit from AI, reminiscent of the late 1990s internet bubble. Against this backdrop, The Madison Large Cap Fund (class I) returned 8.4% in the second quarter of 2026, compared to a 15.2% increase in the S&P 500 Index. The current market's extreme narrowness is concerning, and history suggests this won't persist. While AI is reshaping society and the economy, today's winners may not remain so, and booms could lead to busts. Additionally, factors such as a volatile federal administration, growing budget deficits, inflation, high interest rates, and strained consumer finances will significantly impact the economy and stock market in the future. Additionally, reviewing the Fund's top five holdings could help identify its best picks for 2026.

In its Q2 2026 investor letter, Madison Large Cap Fund highlighted Alphabet Inc. (NASDAQ:GOOG) as a leading performance contributor. Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services, including online search and advertising, cloud solutions, and artificial intelligence. On August 19, 2026, Alphabet Inc. (NASDAQ:GOOG) closed at $341.70 per share, reflecting a market capitalization of $4.2 trillion. Alphabet Inc. (NASDAQ:GOOG) posted a one-month return of 6.96%, while its shares gained 69.72% over the past 52 weeks.

Madison Large Cap Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2026 investor letter:

"Alphabet Inc.** (NASDAQ:GOOG) continues to report very strong results, driven by its two most consequential segments, Search and Cloud. Search is growing revenue in the high teens as users are increasingly finding modified results in AI mode and AI overviews useful while Cloud grew revenue by over 60% and nearly doubled its backlog."

Alphabet Inc. (NASDAQ:GOOG) ranks 7th on our list of 40 Most Popular Stocks Among Hedge Funds. According to our database, 201 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the first quarter, compared to 203 in the previous quarter. In 2025, Alphabet Inc. (NASDAQ:GOOG) achieved its first-ever $400 billion annual revenue and in Q1 2026 its consolidated revenue reached $109.9 billion, up 22% or 19% in constant currency. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

Story Continues In another article, we covered Alphabet Inc. (NASDAQ:GOOG) and shared Jim Cramer's positive views on the company. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.