Alphabet (GOOG 0.80%) (GOOGL 0.83%) has a potential powerhouse on its hands with Google Cloud. The cloud computing segment of Alphabet's hugely profitable company generated $15.15 billion in revenue in the third quarter alone, and $3.59 billion in net income.
Its cloud business is on track to double net income for the full year -- if it continues its current trend, it should generate around $3.8 billion in profits for the fourth quarter and reach nearly $12.4 billion in net income for the full year.
Given the rapid growth in data centers and cloud computing, I think the stage is set for Google Cloud to generate $20 billion in profits for 2026 and become an even more important component of Alphabet's overall growth story.
Let's examine how Google Cloud can get to $20 billion.
Image source: Getty Images.
Why is Google Cloud important?
Google Cloud represents Google's suite of cloud computing services, running on the same infrastructure as its signature Gmail and Search. Google Cloud provides users with access to computing power, storage, networking, machine-learning tools, and data analytics.
It's a growing business because more companies are opting to run workloads on the cloud to avoid huge capital outlays (particularly in setting up data centers) and to increase collaboration. Google Cloud is the third-largest cloud computing company, with a 13% market share, according to Statista, trailing only Amazon Web Services (29%), and Microsoft Azure (20%).
But Google Cloud is growing in influence -- as recently as the fourth quarter of 2020, it had less than 10% of the market.
Cloud computing is also seeing explosive growth as more companies seek to incorporate artificial intelligence (AI) and machine learning into their processes and products. AI requires a large investment in semiconductor chips, such as Nvidia's graphics processing units (GPUs), which are bundled to work together and handle high-level AI tasks.
Google Cloud includes tools for developers to train, operate, and deploy AI-powered products. It also provides access to Gemini, which uses generative AI to help developers and cloud teams build and operate applications more efficiently. The company says more than 70% of its existing Google Cloud customers use its AI products.
Alphabet also has another key advantage: its tensor processing units (TPUs), which are also effective in training AI models. "We are scaling the most advanced chips in our data centers, including GPUs from our partner Nvidia, as well as our own purpose-built TPUs, and we are the only company providing a wide range of both," Alphabet CEO Sundar Pichai said during the company's 2025 third-quarter earnings call.
Google Cloud's impressive growth
First, let's look at the revenue and profits that the cloud segment provided over the last several quarters
|
Period |
Google Cloud Revenue |
Google Cloud Net Income |
Profit Margin |
Year-Over-Year Net Income Growth |
|---|---|---|---|---|
|
Q1 2024 |
$9.57 billion |
$900 million |
9.4% |
373% |
|
Q2 2024 |
$10.34 billion |
$1.17 billion |
11.3% |
192% |
|
Q3 2024 |
$11.35 billion |
$1.94 billion |
17.1% |
618% |
|
Q4 2024 |
$11.95 billion |
$2.09 billion |
17.5% |
143% |
|
Q1 2025 |
$12.26 billion |
$2.17 billion |
17.7% |
141% |
|
Q2 2025 |
$13.62 billion |
$2.82 billion |
20.7% |
141% |
|
Q3 2025 |
$15.15 billion |
$3.59 billion |
23.7% |
85% |
Source: Alphabet
As the chart shows, Alphabet began scaling up Google Cloud in 2024 as the development of AI and generative AI went mainstream, with income rising from $900 million in the first quarter of 2024 to $3.59 billion by the third quarter of 2025. Revenue and net income are steadily rising, as are the division's profit margins.
NASDAQ: GOOGL
Key Data Points
Alphabet will issue its fourth-quarter results after the market closes on Feb. 4. Based on its recent history, it's reasonable to expect at least 75% year-over-year growth for Google Cloud in the fourth quarter, which would be $3.65 billion for the quarter, and a full-year net profit of $12.23 billion for 2025.
Google Cloud's net income for all of 2024 was $6.1 billion, so $12.23 billion would double that. Now, let's conservatively assume that the segment's profits will continue to grow for all of 2026, but at a slower rate of 60% from 2025. That brings us to projected 2026 profits of $19.5 billion for Google Cloud.
The pathway to $20 billion in net income for 2026
We're already within spitting distance of the $20 billion mark, and I don't think it takes a lot to get there. First, Google Cloud is getting more profitable by the quarter. And its backlog grew 46% sequentially and 82% on a year-over-year basis to reach $155 billion. So, I see $20 billion in net income for 2026 to be a reasonable expectation.
The bottom line is that Google Cloud is an increasingly important part of the Alphabet investment story, because it's perfectly aligned at the intersection of cloud computing and AI. It's a major reason I've named Alphabet my No. 1 "Magnificent Seven" stock to buy for 2026, and I think it's a no-brainer investment today.
