Alphabet's (GOOGL 0.21%) (GOOG 0.18%) Google Cloud may sit behind Amazon's AWS and Microsoft's Azure today in terms of market share, but it has the pieces in place to reshape the cloud computing industry by the end of the decade. Cloud growth is being driven by artificial intelligence (AI), and Google Cloud is well-positioned to be the platform of choice in the future.
Let's look at the company's advantages and learn why Alphabet has an opportunity to redefine what cloud infrastructure looks like by 2030.
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The data center built for AI
While Amazon, in particular, tends to have older data centers, Google Cloud is creating an environment designed specifically for AI from the ground up. This starts with its custom tensor processing units (TPU), which provide performance and cost advantages over standard hardware. By combining TPUs with off-the-shelf graphic processing units (GPUs) from Nvidia, Google Cloud can handle everything from large language model (LLM) training to real-time inference more efficiently.
Alphabet's custom TPUs, meanwhile, could become even more important with AI inference expected to become a much larger market than training over time. Right now, soaring AI demand is lifting the boats of all cloud providers. However, the current pace of growth won't last forever. If Google Cloud's TPUs can deliver a cost-per-inference edge, that would give it a powerful advantage once the market starts to become more competitive.
Hardware is only one part of the story, though. One thing investors often overlook when it comes to Alphabet is how long the company has actually spent developing AI. It acquired AI research lab DeepMind back in 2014 and later merged it with its Google Brain division. Today, it's taken this research to create its Gemini models, which are woven directly into its cloud service offerings and tools like Vertex AI, which let customers build, refine, and deploy their own AI solutions.
Increasing capacity
Like most cloud providers, Alphabet is investing heavily to increase data center capacity. It recently bumped up its 2025 capital expenditure (capex) budget by $10 billion to $85 billion, given the strong demand it is seeing from AI. That willingness to invest aggressively positions it well to handle increasing AI demand moving forward.
At the same time, it is collaborating with some of the world's biggest AI players. Earlier this year, it signed a deal with OpenAI as the company looked to diversify away from backer Microsoft. More recently, it signed a six-year, over $10 billion deal with Meta Platforms to provide it with more computing power. Both companies compete directly with Alphabet for ad dollars, but they both turned to Google Cloud to help advance their AI strategies, showing the strength and appeal of its infrastructure platform.
Vertical integration
One of Alphabet's biggest advantages is that it controls both the hardware and the software. This vertical integration helps create performance and cost benefits.
Its TPUs are designed to work seamlessly within its TensorFlow and broader AI frameworks. On top of that, Alphabet operates one of the largest private fiber networks in the world. That allows Google Cloud to deliver high performance and low latency globally.
In addition, Google Cloud is also a leader in both data analytics, with tools like BigQuery, and Kubernetes, which are software packages that bundle apps with everything they need to run. This essentially makes Alphabet a one-stop shop. It offers everything from custom chips to data center infrastructure to AI models to analytic tools and software. And with its impending acquisition of Wiz, you can soon add cloud security to the mix, as well. That is just a complete package that will be difficult to replicate.
Leading the way on clean energy
Alphabet is not stopping at hardware and software, though; it's also looking to be at the forefront of data center energy.
AI data centers have enormous power requirements, and sustainability is becoming a critical factor for enterprises choosing cloud providers. Alphabet has set a bold target of running its data centers on carbon-free energy around the clock by 2030.
It has already struck deals with next-generation energy companies, including partnerships around fusion and nuclear power. For customers with their own environmental goals, this commitment stands out. Offering a "green" cloud makes Google Cloud more attractive to organizations that want performance and sustainability together.
A cheap stock
Even with all this progress, Wall Street continues to value Alphabet as if its core search business is dying. Thus far, that has proven to be a false narrative, with the company seeing its search revenue growth accelerate last quarter. Meanwhile, it has the potential to redefine the cloud computing market, and has other attractive businesses in YouTube and its fast-growing Waymo robotaxi unit.
At a forward price-to-earnings (P/E) ratio of just 21, the stock is cheap and one investment you want to own.
