A doubling forecast for Google Cloud
Alphabet will publish its third-quarter results on Oct. 28, with attention fixed on Google Cloud, the division expected to lead operating income growth over the coming quarters. Management has poured large sums into compute capacity, and investors now want evidence that the spending produces returns. After cloud revenue rose 82% in the second quarter, one forecast argues the segment will more than double its revenue in the third quarter.[S1][S2]
To reach 100% year-over-year growth, Google Cloud would need to exceed $30.3 billion, roughly $5.5 billion above its second-quarter figure. The forecast acknowledges that is a demanding target but argues it is plausible given Alphabet's spending trajectory, plans to shift some workload to outside providers and a growing chip business.[S1]
Spending, backlog and outside capacity
Alphabet's capital expenditure has climbed in every quarter since the start of 2025, and the lag between spending and monetization is central to the bullish case. A data center typically takes a couple of years from groundbreaking to readiness for servers and networking gear, and newly purchased server racks need about three months before they enter service. Because management says it remains capacity-constrained, added servers are used almost immediately.[S1]
Management expects to recognize half of a $514 billion revenue backlog within 24 months, an average of $32 billion per quarter, and says customers are exceeding commitments by more than 50%, which could push the average toward $50 billion. Alphabet also plans to lean on third-party capacity in the third quarter as a bridge while it builds internal capacity, a step CFO Anat Ashkenazi said would pressure cloud margins but allow the company to capture greater overall value.[S1]
Selling Alphabet's in-house TPU chips directly to external customers is a further contributor. The top-line impact is likely to be limited, yet it marks a notable improvement over the second quarter. Alphabet's inventory stood at $10 billion, compared with $2.4 billion at the beginning of the year, a rise that mostly reflects TPUs already committed under contracts.[S1]
Cash flow concerns and valuation
Despite faster cloud revenue growth, investors are still concerned about whether Alphabet's artificial intelligence outlays will pay off. Last quarter the company recorded negative free cash flow for the first time since going public, and that measure is projected to deteriorate further across the coming quarters. The shares have slipped from a spring record high and now change hands at 26 times forward earnings estimates.[S1]
That is the lowest multiple among the three big public cloud platforms, even though Alphabet's cloud business is growing faster than competitors and its Search unit keeps generating substantial operating income. The forecast argues Alphabet is better placed to earn high returns on invested capital because its TPU chips deliver faster payback than conventional GPU chips, making it the preferred cloud provider to buy now.[S1]
