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Google’s (GOOG) cloud backlog rose to $155 billion in the third quarter, up 46% from the previous quarter and up 82% year over year.
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Google Cloud operating margins hit 23.7% in the third quarter, up from 17% last year as scale improves.
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More than 70% of Google’s cloud backlog is related to AI-related services, with companies adopting Gemini and TPU models.
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In the competitive landscape of technology stocks, Alphabet (NASDAQ:GOOG) stands out for 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 rose to $155 billion, nearly $50 billion sequentially, marking an increase of 46% quarter over quarter and 82% year over year.
This figure, known as remaining performance obligations (RPO), reflects the future revenue committed from customer contracts. As companies increase their investments in artificial intelligence (AI) and data, this delay highlights Google Cloud’s momentum against rivals such as Amazon (NASDAQ:AMZN) and microsoft (NASDAQ:MSFT).
For investors, it signals reliable growth ahead, positioning Alphabet as a compelling buy in a market eager for AI-driven advantages.
The 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 offerings for services like computing power, storage, and artificial intelligence tools.
The $155 billion total is broken down into current (expected next year) and non-current (beyond that) RPO. Alphabet expects to recognize 55% of the total in the next two years. Although Google Cloud comes in third place with a 13% share, it is still growing much faster than Amazon’s AWS (29%) or Microsoft’s Azure (20%), closing the gap between them.
The third-quarter increase was driven by multi-year contracts with large enterprises that adopted Google Cloud’s AI infrastructure, such as the Gemini models and the Vertex AI platform. CEO Sundar Pichai said the Gemini app now has more than 650 million monthly active users and inquiries have tripled since the second quarter. This is not a one-time thing; It’s part of a trend in which the backlog has nearly doubled year over year, outpacing overall cloud revenue growth of 34% to $15.2 billion.
The backlog increase points to accelerating demand in a cloud market that is projected to reach up to $2 trillion by 2030. Key drivers of the increase include AI workloads, where customers like Broadcom (NASDAQ: AVGO) and sales force (NYSE:CRM) are integrating Google’s Tensor Processing Units (TPUs) (custom-designed application-specific integrated circuits (ASICs)) and custom silicon for efficient training and inference.