Alphabet's Google Cloud: The Overlooked Growth Engine Powering the Next Phase of AI-Driven Tech Dominance

In the race to dominate the AI-driven future, Alphabet's Google Cloud has emerged as a sleeper giant. While Amazon Web Services (AWS) and Microsoft Azure dominate headlines with their scale, Google Cloud is quietly outpacing its rivals in growth and innovation. With a projected 50%+ revenue increase by 2026, according to a Morgan Stanley analysis, a $155 billion backlog, as noted in a Coinotag report, and a strategic pivot toward open-source AI tools, Google Cloud is positioning itself as the most undervalued yet most dynamic player in the cloud infrastructure wars.

A Backlog-Driven Growth Catalyst

Google Cloud's third-quarter 2025 results underscore its explosive trajectory. Revenue hit $15.2 billion, a 33.5% year-over-year jump, according to a Coinotag report, fueled by a $155 billion backlog-55% of which is expected to convert to revenue within two years, according to a Morgan Stanley analysis. Morgan Stanley analysts argue that if Google adds $50 billion in net backlog in 2026 and its on-demand services grow by 15%, total revenue could surge past 50%, according to a Morgan Stanley analysis. This momentum is underpinned by Alphabet's aggressive capital spending: $91–93 billion annually on data centers and AI infrastructure, according to a Coinotag report, financed in part by a €3 billion European bond sale, according to a Coinotag report.

Profit Margins and Market Share: A Tale of Two Strategies

While Google Cloud's growth outpaces AWS (20% YoY) and Azure (28% YoY), according to a CRN report, its operating income ($3.6 billion in Q3 2025, according to a CRN report) lags behind AWS ($11.4 billion) and Microsoft ($13.4 billion), according to a CRN report. However, this gap reflects divergent strategies. AWS and Azure prioritize market share through aggressive pricing, while Google Cloud bets on high-margin AI infrastructure and enterprise software. By Q2 2025, Google Cloud held 13% of the global cloud infrastructure market, according to a Cargoson report, trailing AWS (30%) and Azure (20%), but its 32% growth rate, according to a Tom Tunguz analysis, suggests a narrowing gap.

Undervaluation in a High-Multiple Sector

Google Cloud's valuation multiples remain compelling. With a 34% YoY revenue growth and an 85% surge in operating income, according to a CRN report, it trades at a discount to AWS and Azure, which command higher price-to-earnings ratios despite slower growth, according to a CRN report. This undervaluation stems from skepticism about its ability to scale profits, but the math is shifting. If Google Cloud's 50%+ growth materializes, according to a Morgan Stanley analysis, its current revenue run rate of $61 billion, according to a CRN report, could approach $100 billion by 2026-a trajectory that would justify a premium multiple.

AI Infrastructure: The Long Game

Google Cloud's edge lies in its AI infrastructure bets. While Azure leads in AI-driven revenue growth (40% YoY in Q3 2025, according to a CRN report), Google Cloud is gaining traction with open-source tools like Vertex AI and its partnership with Anthropic, according to a Tom Tunguz analysis. These moves position it to capture market share in generative AI, where cost efficiency and flexibility are paramount. Alphabet's $91–93 billion capex plan, according to a Coinotag report, ensures it can rival AWS and Azure in GPU capacity, a critical bottleneck for AI expansion.

Conclusion: A Compelling Long-Term Play

Google Cloud's combination of high-growth projections, strategic AI investments, and undervaluation makes it a standout in the cloud sector. While AWS and Azure dominate today, Google Cloud's agility and focus on AI infrastructure could redefine the landscape by 2026. For investors seeking exposure to the AI revolution, Alphabet's cloud division offers a rare mix of momentum and upside.