Hua Er Jie Jian Wen·2025-11-06 11:52Core Viewpoint - Morgan Stanley believes that Google Cloud's revenue growth rate could exceed 50% by 2026, which is approximately 15% higher than market expectations, indicating a significant underestimation of its growth potential [1][4]. Revenue Structure Analysis - Google Cloud's growth is driven by two components: backlog orders and on-demand services. Historically, backlog orders account for 45-50% of Google Cloud's revenue, with on-demand services showing year-over-year growth of 29% in 2023 and 37% in 2024 [2][4]. - A sensitivity analysis suggests that if net new backlog orders exceed $50 billion in 2026, along with on-demand growth of over 15%, Google Cloud's revenue growth can surpass 50%. Even with a backlog increase of only $20 billion, a 25% growth in on-demand services can still achieve over 50% revenue growth [2][3]. Growth Projections - If Google Cloud achieves over 50% growth in 2026, its revenue could exceed Morgan Stanley's current expectations by over 4% and market consensus by over 15%. In an optimistic scenario with $100 billion in new backlog orders and 25% growth in on-demand services, revenue growth could reach 64% [4][5]. Strategic Value in AI Era - The sustained growth of Google Cloud is seen as a key driver for expanding Alphabet's valuation multiples and outperforming in the AI-driven market. As of Q3 2025, Google Cloud's backlog reached $158 billion, with expectations to grow to $199 billion by Q4 2025, supporting strong revenue growth despite a potential slowdown in new orders [5]. - The analysis highlights Google Cloud's strategic value in the AI era, emphasizing Alphabet's competitive advantage through proprietary TPU chips and the Gemini model, which are crucial for investors assessing future growth potential [5].