AI advancements drive further growth for GOOGL's cloud division: Is there more potential for gains?

Alphabet's Google Cloud Momentum and AI Expansion

Alphabet (GOOGL) is experiencing significant growth in its Google Cloud division, which is projected to contribute 14.6% to the company’s total revenue in 2025. Google Cloud’s revenue soared by 35.8% year-over-year, reaching $58.71 billion. This impressive performance was fueled by the expansion of the Google Cloud Platform (GCP), particularly in core offerings, AI infrastructure, and generative AI solutions. The company’s cloud backlog also saw a remarkable 55% sequential increase, totaling $240 billion by the end of 2025. Alphabet’s ongoing investment in artificial intelligence is expected to further enhance Google Cloud’s outlook in the near future.

Alphabet’s robust AI infrastructure is attracting more enterprise customers. The outlook for GCP remains strong, driven by heightened demand for enterprise AI infrastructure such as seventh-generation Ironwood TPUs and NVIDIA’s latest GPUs. Additionally, enterprise AI solutions—powered by advanced models like Gemini—and services in cybersecurity and data analytics are contributing to this momentum. Google Cloud is also seeing widespread adoption of its generative AI models, including Gemini, Imagen, Veo, Chirp, and Lyria. In the fourth quarter of 2025, revenue from products utilizing generative AI models surged nearly 400% compared to the previous year.

By the close of 2025’s fourth quarter, Google Cloud’s customer base had doubled since the first quarter of the year. The number of deals exceeding $1 billion surpassed the combined total of the previous three years, indicating growing client commitments. Around 75% of Google Cloud users have leveraged Alphabet’s vertically integrated AI solutions, which span from hardware to AI platforms and enterprise agents, offering notable advantages in performance, quality, security, and cost. Alphabet’s cloud-based AI accelerators are meeting the demands of leading AI research labs, financial institutions like Citadel Securities, major corporations such as Mercedes-Benz, and government agencies requiring high-performance computing.

Security remains a key growth driver for Google Cloud. The planned acquisition of Wiz (expected to finalize in 2026) is set to strengthen Google Cloud’s competitive position against industry leaders like Amazon (AMZN) and Microsoft (MSFT). Alphabet’s increasing investments are a positive sign for future prospects, with capital expenditures anticipated to range between $175 billion and $185 billion in 2026.

Intense Competition in the Cloud Market

According to Synergy Research Group, Amazon held a 28% share of the global cloud infrastructure market in the fourth quarter of 2025, maintaining its lead over Microsoft Azure at 21% and Google Cloud at 14%.

Amazon is making substantial investments to enhance its Amazon Web Services (AWS) infrastructure, particularly to support AI workloads and expand its data center footprint. The company has allocated $200 billion in capital expenditures for 2026, with the majority directed toward AWS. In the fourth quarter of 2025, AWS revenue grew by 24%—its fastest rate in over three years—and its backlog climbed 40% to $244 billion.

Microsoft’s Azure and other cloud services posted a 38% increase in revenue (in constant currency) during the second quarter of fiscal 2026, with management attributing much of this growth to AI-related demand. Microsoft Cloud’s total revenue reached $51.5 billion, up 24% in constant currency. For the third quarter of fiscal 2026, Azure and other cloud services are expected to see revenue growth of approximately 37% to 38% in constant currency.

Alphabet’s Stock Performance, Valuation, and Analyst Estimates

Over the past year, Alphabet’s share price has surged 85.7%, significantly outperforming the broader Computer and Technology sector, which returned 30.1% during the same period.

GOOGL Stock Outpaces the Sector

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Currently, GOOGL trades at a forward 12-month price-to-sales ratio of 9.01, compared to the sector average of 6.43. Alphabet’s Value Score is rated D, indicating a premium valuation relative to its peers.

GOOGL Valuation Overview

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The Zacks Consensus Estimate projects Alphabet’s 2026 earnings at $11.58 per share, reflecting a 4.5% increase over the past month and indicating expected growth of 7.1% compared to 2025’s reported earnings.

Alphabet Inc.: Price and Consensus Trends

For more details, see the Alphabet Inc. price-consensus chart and the latest Alphabet Inc. quote.

Alphabet currently holds a Zacks Rank #3 (Hold). You can view the full list of Zacks #1 Rank (Strong Buy) stocks here.

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This article was originally published by Zacks Investment Research.

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