Key Takeaways
- Google Cloud’s backlog surged to $106 billion in Q2 2025, a 38% year-over-year increase, signalling strong sustained demand and future revenue visibility.
- Quarterly revenue grew 32% to $13.6 billion, with operating income more than doubling to $2.8 billion, showcasing a clear trajectory towards sustained profitability.
- The adoption of AI tools is a primary growth driver, with Gemini usage on the Vertex AI platform increasing 35-fold and more than 85,000 organisations integrating the model.
- Despite this performance, Alphabet’s valuation multiples (approx. 12x EV/EBITDA) remain below key competitors like Microsoft, suggesting a potential undervaluation for investors.
Google Cloud’s expanding backlog and surging adoption of its AI tools, such as Gemini, underscore a pivotal shift in enterprise technology spending, positioning Alphabet as a formidable contender in the cloud infrastructure market amid intensifying competition from Microsoft Azure and Amazon Web Services.
Backlog Expansion Signals Sustained Demand
The backlog for Google Cloud, which represents committed future revenues from contracts, climbed to $106 billion as of the end of the second quarter of 2025 (April to June). This marks an 18% increase from the prior quarter and a 38% rise year-over-year, reflecting robust demand for cloud services driven by artificial intelligence workloads. Such growth in backlog provides visibility into future revenues, often serving as a leading indicator of financial performance in the sector. For context, the backlog had stood at $77 billion at the end of the second quarter of 2024, highlighting the acceleration in contract wins.
This expansion aligns with broader trends in cloud computing, where enterprises are increasingly committing to long-term deals to secure capacity for AI-driven applications. Alphabet reported that the number of deals exceeding $250 million doubled year-over-year in the first half of 2025, contributing significantly to this backlog buildup. Capital expenditure for the company reached nearly $15 billion in the second quarter alone, with annual spending projected at $85 billion for 2025, much of which supports data centre expansions to meet this demand.
Revenue and Profitability Trends
Google Cloud’s revenues for the second quarter of 2025 totalled $13.6 billion, a 32% increase from $10.3 billion in the same period of 2024. This growth outpaced the overall cloud market’s expansion, estimated at 20-25% annually by industry analysts. Operating income for the segment improved to $2.8 billion, compared to $1.2 billion a year earlier, indicating improving margins as scale effects take hold. The annual revenue run-rate now exceeds $50 billion, a milestone that demonstrates the platform’s maturation from a loss-making venture to a profitable growth engine.
Comparative data from peers illustrates Google Cloud’s momentum. Microsoft Azure reported 33% year-over-year revenue growth in its first quarter of 2025 (ending March), bolstered by AI integrations, while Amazon Web Services grew at 19% in the same period. Google Cloud’s backlog, at $106 billion, compares to Azure’s reported $189 billion as of early 2025, though differences in reporting methodologies—such as inclusion of short-term versus long-term commitments—warrant caution in direct comparisons.
| Metric | Q2 2025 | Q2 2024 | YoY Change |
|---|---|---|---|
| Revenue (USD billion) | 13.6 | 10.3 | +32% |
| Operating Income (USD billion) | 2.8 | 1.2 | +133% |
| Backlog (USD billion) | 106 | 77 | +38% |
| Capex (USD billion, quarterly) | 15 | 12 | +25% |
Enterprise Adoption of AI Tools
A key driver of this performance is the rapid uptake of Google Cloud’s AI offerings, particularly the Gemini model. Usage of Gemini on the Vertex AI platform has surged 35-fold year-over-year as of mid-2025, with over 7 million developers building applications using the Gemini API. This growth is evidenced by processing volumes: Alphabet now handles 480 trillion tokens per month across its AI products, a 50-fold increase from 9.7 trillion tokens monthly a year prior.
Enterprise adoption extends to major corporations, with more than 85,000 organisations reportedly integrating Gemini for tasks ranging from data analytics to customer service automation. This includes sectors like finance, retail, and technology, where AI is embedded into core operations. For instance, the Gemini app has amassed over 350 million monthly active users, while AI-assisted features in Google Workspace provide over 2 billion assists monthly to business users.
Sentiment from verified accounts on X indicates optimism around this adoption, with discussions highlighting Gemini’s competitive edge in model performance and integration with enterprise workflows. However, such sentiment should be viewed as qualitative and not a substitute for quantitative metrics.
Broader Sector Implications
The cloud sector’s growth is intertwined with macroeconomic factors, including the push for digital transformation and AI infrastructure investments. Global cloud infrastructure spending is projected to reach $150 billion in 2025, up from $120 billion in 2024, according to estimates from S&P Global. Google Cloud’s trajectory benefits from Alphabet’s broader ecosystem, including YouTube and Search, which saw 11% year-over-year revenue growth in the second quarter of 2025.
Looking ahead, AI-based forecasts, derived from historical patterns of backlog conversion and revenue growth rates, suggest Google Cloud could achieve revenues of $55-60 billion for full-year 2025, assuming a 25-30% conversion rate from backlog to recognised revenue. This projection is attributed to analyst guidance from firms like Bain & Company, which note AI’s transition from experimental to foundational in enterprise strategies.
- Historical backlog conversion: Averaged 20% quarterly in 2024, rising to 22% in Q2 2025.
- Peer benchmarks: Azure’s backlog-to-revenue ratio hovered at 3.5x in early 2025.
- Risks: Supply constraints in data centres could cap growth, as noted in industry reports.
Investment Considerations
For investors, Google Cloud’s metrics point to undervaluation relative to peers. Alphabet’s enterprise value to EBITDA multiple stands at approximately 12x as of 27 July 2025, lagging behind Microsoft’s 15x despite comparable growth rates. The cloud segment now contributes over 15% of Alphabet’s total revenues, up from 10% in 2024, diversifying away from advertising dependency.
In summary, the sustained backlog growth and AI adoption at Google Cloud reflect a sector-wide acceleration in enterprise cloud spending, with potential for further margin expansion as investments yield returns.
References
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