Prediction: Alphabet Will Report Google Cloud Revenue Growth Exceeding 100% on Oct. 28.

Adam Levy, The Motley FoolSun, October 18, 2026 at 12:05 PM UTC

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Image source: The Motley Fool.Key Points -

Alphabet is spending heavily on new AI capacity, and investors want to see it pay off.

Ongoing capacity constraints should support high utilization rates for new compute capacity.

Investors are discounting Alphabet stock relative to its peers despite its faster growth rate.

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Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) is set to report its third-quarter earnings on Oct. 28, and all eyes will be on the company's cloud computing business. Google Cloud is on track to become the company's largest driver of operating income growth in the next few quarters. And with the massive amount of capital management is piling into building more compute capacity, it's become the biggest focus of investors, who want to see a good return on that investment.

After Google Cloud revenue growth accelerated to 82% in the second quarter, I predict the segment will more than double revenue in the third quarter. Here's why, and what it means for Alphabet shareholders.

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Google Cloud is set for another big step up in revenue

There are several reasons to expect further acceleration in Google Cloud revenue for the third quarter.

If you simply look at Alphabet's spending, it provides a strong signal. There's a delay between when Alphabet spends capital and when it can start monetizing the assets it's spending on. The average data center takes a couple of years from groundbreaking until it's ready for servers and networking equipment, and there's about a three-month delay between buying a bunch of server racks and getting them online for service. Considering Alphabet's capital expenditures have accelerated in every quarter since the start of 2025, it's a good bet revenue will continue to accelerate as well.

The likelihood is supported by management's reiteration that it's still capacity-constrained. So, the servers it puts in place are highly utilized right away. Management says it expects to recognize half of its $514 billion revenue backlog over the next 24 months, averaging $32 billion per quarter. What's more, management said customers are exceeding their commitments by more than 50%, pushing the potential average closer to $50 billion per quarter.

The second factor to consider is that Alphabet is accelerating revenue next quarter by offloading more of its workload to neocloud companies. "We plan to expand the use of third‑party capacity in Q3 as a bridging strategy while we build out more internal capacity," CFO Anat Ashkenazi said on the company's second-quarter earnings call. She warned that it will put pressure on Google Cloud's margin, but allows the company to "capture greater overall value."

The last factor that could drive Google Cloud revenue is the company's plans to sell its custom TPU chips directly to third parties. Direct TPU sales will have a relatively small impact on revenue but should provide a significant step-up from the second quarter. Alphabet's inventory on its balance sheet climbed to $10 billion, up from $2.4 billion at the start of the year. That represents potential sales, mostly of TPUs for which it's already contracted.

In order for Google Cloud revenue to grow 100% year over year, it needs to top $30.3 billion. That's about $5.5 billion more than it earned in the second quarter. That's a tall order, to be sure, but based on Alphabet's spending, plans to offload some capacity, and its burgeoning TPU business, it's within reason.

What accelerating cloud revenue means for Alphabet investors

While Google Cloud revenue has accelerated, many investors remain concerned about Alphabet's ability to produce strong returns on its artificial intelligence spending. The company reported negative free cash flow for the first time as a public company last quarter, and free cash flow is expected to fall deeper into the red over the next few quarters.

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That's weighed heavily on the stock price. Shares have dropped since hitting an all-time high in the spring, and currently trade for 26 times forward earnings estimates.

That's the lowest multiple among the big three public cloud platforms, even though its cloud business is growing faster than the competition's and its Search business continues to generate substantial (and growing) operating income every quarter. What's more, Google's better positioned to produce high returns on its invested capital thanks to the popularity of its TPU chips, which produce faster payback periods than traditional GPU chips.

Overall, Alphabet looks like the best cloud provider to buy right now, with its cloud revenue set to drive earnings much higher over the next few quarters.

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Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.

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