The 1 Number That Shows Why Alphabet Is a Buy Today

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Google (GOOG) Cloud backlog surged to $155B in Q3, up 46% quarter-over-quarter and 82% year-over-year. Google Cloud operating margins hit 23.7% in Q3, up from 17% last year as scale improves. Over 70% of Google’s cloud backlog ties to AI-related services, with enterprises adopting Gemini models and TPUs. Some investors get rich while others struggle because they never learned there are two completely different strategies to building wealth. Don’t make the same mistake, learn about both here.

In the competitive tech stock landscape, Alphabet (NASDAQ:GOOG) stands out because of its diverse revenue streams, from search advertising to cloud computing. While its third-quarter earnings report last week gave its stock a boost, one number stood out in a report full of positive news:  Google Cloud's backlog surged to $155 billion -- up almost $50 billion sequentially, marking a 46% increase quarter-over-quarter and 82% year-over-year.

This figure, known as remaining performance obligations (RPO), reflects committed future revenue from customer contracts. As enterprises ramp up artificial intelligence (AI) and data investments, this backlog highlights Google Cloud's momentum against rivals like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

For investors, it signals reliable growth ahead, positioning Alphabet as a compelling buy in a market hungry for AI-driven upside.

Unpacking Google's Backlog

Backlog, or RPO, measures the total value of contracted revenue that a company expects to recognize in the future. For Google Cloud, this includes subscriptions, usage-based fees, and long-term deals for services like computing power, storage, and AI tools.

The $155 billion total breaks down into current RPO (expected within the next year) and non-current (beyond that). Alphabet expects to recognize 55% of the total within the next two years. Although Google Cloud is in third place with a 13% share, it continues to grow much faster than either Amazon's AWS (29%) or Microsoft's Azure (20%), closing the gap between them..

The third-quarter surge was fueled by multi-year contracts with large enterprises adopting Google Cloud's AI infrastructure, such as Gemini models and Vertex AI platform. CEO Sundar Pichai said the Gemini App now has over 650 million monthly active users, and queries tripled from Q2. This isn't just a one-off; it's part of a trend where backlog has nearly doubled year-over-year, outpacing overall cloud revenue growth of 34% to $15.2 billion.

Why This Surge Matters Now

The backlog jump points to accelerating demand in a cloud market projected to hit as much as $2 trillion by 2030. Key drivers of the increase include AI workloads, where customers like Broadcom (NASDAQ:AVGO) and Salesforce (NYSE:CRM) are integrating Google's Tensor processing units (TPUs) -- custom-designed application-specific integrated circuits (ASIC) -- and custom silicon for efficient training and inference.

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Unlike volatile ad revenue, which still dominates Alphabet's $102.3 billion quarterly total, the cloud segment offers predictable, high-margin growth. Operating margins hit 23.7% in Q3, up from 17% last year, as its scale kicks in. This backlog insulates against economic downturns, providing visibility into revenue streams that could add billions of dollars annually.

Risks and Alphabet's Competitive Edge

However, no metric is foolproof. Backlog can fluctuate with contract renewals or cancellations, and intense competition means Google must innovate to retain customers. Yet, Alphabet's advantages put it in a good position: its integration of AI across its ecosystem -- from YouTube to Workspace -- creates a flywheel effect.

The company's $24 billion quarterly in capital expenditures, up 83%, supports data center expansions and AI hardware, directly feeding backlog growth. Over 70% of the backlog ties to AI-related services, aligning with global trends like generative AI adoption. Apple (NASDAQ:AAPL), for example, is poised to pay Alphabet $1 billion to use a 1.2 trillion parameter Google AI model to power its upcoming overhaul of Siri. This positions Alphabet to capture more share in hybrid cloud setups, where flexibility trumps any lock-in agreement.

Long-Term Growth Outlook

Looking ahead, the backlog suggests Google Cloud could contribute 20% or more to Alphabet's revenue by 2027, up from 15% today. Analysts project cloud revenue doubling in three years, driven by enterprise migrations and AI monetization.

Beyond just Google Cloud, Alphabet's strengths include 300 million Google One subscribers and search dominance, providing it with a safety net. Regulatory hurdles, such as antitrust scrutiny, remain a persistent threat (though it just cleared a Justice Dept. antitrust review of its Wiz acquisition), but they haven't derailed its momentum.

Investors eyeing value will note Alphabet's forward P/E ratio around 26 is reasonable given its growth trajectory. This backlog isn't just a number -- it's a roadmap to sustained profitability in the AI era.

Key Takeaway

Alphabet's $155 billion cloud backlog reveals locked-in future revenue, underscoring Google Cloud's AI-fueled ascent. This metric offers investors clear visibility into growth, outweighing short-term volatility in other segments.

With strong execution, Alphabet remains a smart buy at under $285 per share for those betting on tech's next wave.

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