Alphabet's cloud computing division posted 82% year-over-year revenue growth last quarter, its fifth straight quarter of acceleration. The unit generated $24.8 billion in revenue against a $514 billion backlog, even as capital expenditures climbed 100% to fund AI data center construction.
Alphabet's cloud computing division extended its growth streak last quarter, with revenue climbing 82% year over year. That marks the segment's fifth consecutive quarter of accelerating growth, and Motley Fool's Adam Levy expects a sixth straight quarter when Alphabet reports again in three months.
The unit generated $24.8 billion in revenue, a run rate of $99 billion. Its backlog reached $514 billion, with about half of that expected over the next two years — an average of $128.5 billion a year from backlog alone.
Workspace and TPU sales add momentum
Alphabet's management said Google Workspace and other enterprise tools showed strong growth, helped by the integration of Gemini, Google's large language model. Management also said existing customers are exceeding their commitments by more than 50%.
TPU chip sales made up only a small share of cloud revenue last quarter, but Levy said that could grow quickly in the third quarter. Inventory tied to the chips jumped from $2.4 billion at the end of 2025 to $10 billion by the end of the second quarter, which Levy said points to a coming step-up in TPU shipments.
Capital spending keeps climbing
Capital expenditures rose 100% last quarter to nearly $45 billion, a slight slowdown from the 107% jump in the first quarter. Management said 40% of that technical infrastructure spending went toward new data centers and networking gear, with the rest on servers.
Amazon CEO Andy Jassy has said data center spending takes about two years to start generating a cash return, and Levy said Alphabet likely follows the same pattern. The company has committed to spend $811 billion on AI infrastructure, mostly over the next four and a half years.
Margins still trail larger rivals
If Alphabet repeats 82% growth in the third quarter, cloud revenue would reach $27.6 billion, a run rate of $110.3 billion. Levy said it's not unreasonable to expect closer to $30 billion, which would put growth near 100%.
Alphabet's cloud operating margin stood at 35.6%, below the roughly 40% margins Amazon and Microsoft posted on their cloud businesses in their latest results. Levy said near-term margin pressure could persist as Alphabet leans on third-party neoclouds for extra capacity, though margins should eventually converge with larger rivals.
Source: The Motley Fool
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