One Reason Alphabet Stock Looks Better Than Its Price

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Google Cloud stands out at Alphabet (GOOGL), and it may be what Alphabet bulls are betting on. You probably think of Alphabet as a search advertising company, but Cloud is growing much faster than Search. Yet the stock lost 1.2% over the six months to October 21, 2026, while the S&P 500 gained 9.3%. That is the contradiction: the business looks better than the share price suggests. So how large a business is Google Cloud today?

Google Cloud Now Brings In $24.8 Billion A Quarter

Google Cloud brought in $24.8 billion of revenue in the second quarter of fiscal 2026, up 82% from a year earlier. By contrast, revenue from Google Search and other advertising grew 17%. Alphabet as a whole reported $120 billion of revenue that quarter, so Cloud is no longer a side business.

Cloud now makes real money, too. Operating income more than tripled from a year earlier to $8.8 billion, while its operating margin rose to 35.6% from 20.7% over the same year.

Cloud’s backlog, the work customers have committed to that Alphabet has not yet booked as revenue, reached $514 billion at the end of June 2026. That is more than the $446 billion of revenue all of Alphabet reported over the past twelve months. Management said most of the backlog comes from typical cloud contracts with a broad mix of customers, and that the latest increase came from demand for its enterprise AI offerings.

Alphabet Outspent Its Operating Cash In Q2 2026

In the second quarter, Alphabet spent $44.9 billion on capital projects, exceeding the $39.1 billion of cash its operations brought in. Most of that money went into technical infrastructure for AI, management said. Alphabet also raised its 2026 capital spending guide to between $195 billion and $205 billion, from $180 billion to $190 billion. That spending is the obvious worry for a holder, and management expects free cash flow to stay under pressure.

Google Cloud makes the spending easier to understand. Management tied the higher guide mainly to faster delivery of capacity to meet growing demand, and said that demand comes from cloud customers as well as from across Alphabet’s own business. Over the next 24 months, Alphabet expects to recognize just over 50% of Cloud’s backlog as revenue.

That does not settle the worry. Management expects capital spending to increase significantly again in 2027, and said higher depreciation and data center costs, such as energy, will keep putting pressure on profit.

What Could Slow Google Cloud Down?

A lack of capacity could. On the July 22, 2026 call, management said demand still outpaces what Alphabet has built, and that Alphabet works in a supply-constrained environment like the rest of the industry. To bridge the gap, Alphabet planned to use more capacity from third parties in the third quarter while it built more of its own. Management expected modest margin pressure in the near term as Alphabet put that capacity to use.

Timing matters as well. Management expects the vast majority of revenue from Alphabet’s deals to sell TPU systems, built on its own chips, to arrive in 2027. For a holder, the risk is that costs rise faster than Alphabet turns Cloud’s backlog into revenue, or that the revenue comes at a lower margin.

Google Cloud’s revenue growth and its backlog are the figures to watch when Alphabet reports its third quarter, expected on October 28, 2026.

Does This Mean You Should Act On GOOGL?

Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

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