Alphabet’s Rapid Cloud Expansion AI Wins Matter But I Keep Buying For Something Else Alex Sirois Tue, October 13, 2026 at 8:45 AM EDT 4 min read GOOG +0.32% MSFT +1.14% AMZN -1.11% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Google Cloud's $514 billion signed backlog converts already-committed customer spending into predictable future revenue not yet reflected in earnings reports.
Alphabet's cloud outgrows both Microsoft Azure at 43% and Amazon AWS at 37% while trading at roughly 16x earnings, half their valuations.
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I added to my Alphabet (NASDAQ:GOOGL) position again, and I already know I will do it next quarter too. Most investors point to Google Cloud's growth rate as the reason to own it. That growth matters to me. The number that keeps pulling me back is the one that tells me what Alphabet will earn years from now: a $514 billion backlog of signed cloud commitments.
Google Cloud revenue grew 82% to $24.77 billion in Q2. Growth has sped up every quarter, from 34% in Q3 2025, to 48% in Q4 2025, to 63% in Q1 2026. That acceleration supports the AI capex plan, which management guided to $175 billion to $185 billion for 2026.
Spending on that scale would make me nervous if customers had not already committed to pay for the capacity. They have. Backlog stood at $155 billion in Q3 2025, reached over $460 billion in Q1 2026, and now totals $514 billion. Growth rates move around from quarter to quarter. A signed commitment represents revenue customers have agreed to pay. For a long-term portfolio, I want to own exactly that kind of visibility.
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First, the core business funds the ambition. Q2 revenue rose 24.2% to $119.80 billion, the 12th straight quarter of double-digit revenue growth. Search grew 17%, and operating margin expanded 2 points to 34%. AI is lifting Search, which I see as a sign of strength. The Gemini App has 950 million monthly active users.
Second, the quality metrics hold up. Return on equity is 35.70%, net debt-to-EBITDA at 0.19, and interest coverage at 175.5x.
Third, management delivers. Q2 marked the 11th consecutive EPS beat, and the board raised the quarterly dividend 5% to $0.22. The 0.49% yield is modest. I own Alphabet for compounding, and the dividend gives me a small, rising bonus on top.
The cloud business at Microsoft (NASDAQ:MSFT) is excellent, with Azure growing 43%. It trades at about 30 times earnings, compared with about 16 for Alphabet. Meanwhile, Amazon (NASDAQ:AMZN) grew AWS 37%, but it carries a P/E near 36 and a price-to-free-cash-flow ratio near 364, against 59 for Alphabet. Alphabet's cloud growth is faster than both, and I pay less for it.
Q2 free cash flow came in at -$5.86 billion as capex climbed 100.1%. Long-term debt rose from $46.5 billion to $98.2 billion, and interest expense increased about 5x. Alphabet suspended buybacks and raised $49.6 billion in equity, which dilutes my stake. The low P/E also flatters the stock, because Q2 net income included a $99.03 billion unrealized gain.
I take all of that seriously. My thesis still stands because operating cash flow grew 40.8% and the money is going toward demand customers have already signed for. Borrowing to meet signed demand carries far less risk than borrowing on hope.
I track the backlog every quarter. As long as signed commitments keep growing faster than the spending needed to fulfill them, I keep adding. Alphabet has already booked a large share of its future revenue, and that revenue has yet to show up in the earnings reports.
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