Since Alphabet’s third-quarter earnings report, analysts have shown considerable optimism. The parent company of Google has demonstrated why it’s regarded as one of the top players in the artificial intelligence sector, with quarterly revenue hitting $100 billion.
On October 30, just a day after the earnings announcement, two firms revised their ratings for Alphabet’s stock. Scotiabank set a price target of $336, while JP Morgan aimed for $340. These projections suggest a potential 20% rise from Alphabet’s current stock value.
Will that price target be met? I think it’s a reasonable expectation, but reaching it will largely depend on the sustained growth of the company’s advertising sector.
The future of Google Cloud
Google Cloud competes with major players like Amazon Web Services (AWS) and Microsoft Azure. Currently, AWS holds the largest market share at 29%, followed by Azure with 20%. Google Cloud sits at third with 13%, trailed by Alibaba, Oracle, Salesforce, and IBM.
This positioning presents Google Cloud with ample opportunities to capture more of the market. Even if it maintains its current share, the expanding demand for data centers could yield significant profits for Alphabet.
In the third quarter, Google Cloud generated $15.15 billion in revenue, marking a 33% year-over-year increase. Its operating income jumped to $3.59 billion, a notable rise from $1.95 billion during the same period last year.
Google Cloud ended the quarter with a backlog of $155 billion, a substantial 46% increase year-over-year. The company signed more deals in this sector over the past two years, with expectations of surpassing $1 billion in 2025, according to management.
CEO Sundar Pichai highlighted the significance of Google Cloud in discussions with analysts:
I think one of Google Cloud’s strengths is its full-stack approach to artificial intelligence. This strategy is truly effective. We are unique among hyperscalers in that we create products based on our own models, using proprietary technology. This should allow us to continue boosting our operating margins, as we’ve done in the past.
The outlook for Google Cloud in 2026 and beyond
At its core, Alphabet is primarily an advertising company. Google Advertising comprised 72% of total revenue, raking in $74.18 billion last quarter, with both search and YouTube ads experiencing double-digit growth.
This outcome is crucial because these revenue streams are vital for Alphabet to support Google Cloud’s growth. Spending over $90 billion on capital expenditures might seem impractical, yet that’s what hyperscalers are doing. Alphabet, with a robust cash reserve of $23.2 billion, can do this.
The strength of Alphabet’s advertising division provides Google Cloud with a solid foundation to expand and gain market share from competitors like Amazon and Microsoft. Analysts seem to agree, making a 20% increase in share price appear more than just a hopeful fantasy.
