Alphabet Inc. reports its third-quarter financial results on Oct. 28, with analysts watching closely for acceleration in Google Cloud revenue. The cloud division's growth rate has climbed significantly over the past year, reaching 82% in the second quarter after standing at 63% in the first quarter and 48% in the fourth quarter of 2025. This pace outstrips competitors Microsoft Azure, which posted 43% growth in its latest quarter, and Amazon Web Services, which reported 37%.
The stock has lagged the broader market this year, rising only about 7% while the S&P 500 has performed better. However, the rapid expansion of Google Cloud offers a potential catalyst for a reversal. As the third-largest cloud provider by market share, Alphabet has historically trailed its peers, but current momentum suggests it is closing the gap. Demand for cloud computing is driven largely by artificial intelligence workloads, which require substantial processing power. Each AI workload incurs costs for the provider, meaning rising AI usage directly translates to increased revenue for cloud platforms.
To support this demand, Alphabet plans to spend between $195 billion and $205 billion on capital expenditures this year, primarily directed toward data center infrastructure. These investments appear to be yielding returns, as evidenced by the accelerating revenue growth in its cloud division. Beyond standard workload growth, Alphabet is diversifying its cloud revenue streams through its custom-designed Tensor Processing Units, or TPUs.
TPUs serve as an alternative to graphics processing units, offering better performance at a lower cost when workloads are properly optimized. While these chips were previously available only through Google Cloud services, Alphabet has begun selling the physical units directly to select clients. The company expects the majority of this direct hardware revenue to materialize in 2027, though some sales are already impacting current results. If Google Cloud maintains its current trajectory, revenue growth could reach triple digits in the upcoming quarter.
Valuation metrics currently show Alphabet trading at approximately 27 times operating income, a level comparable to its peers. While one-time gains from investments skew traditional price-to-earnings ratios, operating earnings provide a clearer view of the company's standing. The stock is considered fairly valued rather than expensive, suggesting that future price movements will be driven largely by actual performance data released on Oct. 28.