Alphabet’s Rapid Cloud Expansion AI Wins Matter But I Keep Buying For Something Else
Alphabet's cloud growth rate gets all the attention, but one number buried in the earnings report is why I keep adding shares every quarter and plan to keep doing it.
I added to my Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) 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.
Signed Contracts Turn AI Spending Into Visible Revenue
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.
Three Reasons My Conviction Keeps Growing
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.
Why I Pass on Microsoft and Amazon
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.
A Debt-Funded Buildout Is the Risk I Track Most
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.
What Keeps My Alphabet Thesis Intact
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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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
