The high growth of Google Cloud has just begun! Morgan Stanley: Conservatively calculated, the growth rate may exceed 50% next year

Morgan Stanley believes that through the dissection of Google Cloud's revenue structure, even under relatively conservative assumptions, the revenue growth rate of Google Cloud in 2026 is highly likely to exceed 50%, a prediction that is about 15% higher than the general market expectation.

According to news from the Chase Wind Trading Desk, Morgan Stanley stated in a report on November 5 that the general consensus in the market may severely underestimate the growth potential of Google Cloud.

By dissecting Google Cloud's revenue structure into two parts: "Backlog" and "On-demand," Morgan Stanley believes that even under relatively conservative assumptions, the revenue growth rate of Google Cloud in 2026 is highly likely to exceed 50%. The continued outperformance of the cloud business will be a key catalyst driving the expansion of the company's valuation multiples and the stock price outperforming the market under AI-driven conditions.

The Path to 50% Growth

Morgan Stanley breaks down the growth drivers of Google Cloud into two parts: signed but unrecognized revenue backlog (Backlog) and non-backlog orders/immediate demand (On-demand) that customers use immediately.

Historical data shows that backlog orders have consistently accounted for about 45-50% of Google Cloud's revenue, with the remaining portion driven by on-demand business. This means that Google Cloud's on-demand business achieved year-on-year growth of 29% and 37% in 2023 and 2024, respectively, with a growth rate of about 25% from 2025 to the present.

Morgan Stanley's sensitivity analysis indicates that as long as the net new backlog orders in 2026 reach about $50 billion or more (far below the estimated $106 billion for 2025), and the on-demand business maintains growth of over 15%, the revenue growth rate of Google Cloud can exceed 50%. Even if the on-demand business maintains a year-on-year growth of 25%, with new backlog orders of only $20 billion, it can still achieve over 50% revenue growth.

Specifically, each additional increase of $20 billion in net backlog orders for 2026 can bring about a 340 basis point increase in Google Cloud's revenue growth rate. Similarly, for every 10 percentage point increase in on-demand business revenue growth, it can contribute about 5 percentage points to the overall revenue growth rate of Google Cloud.

Morgan Stanley's analysis shows that if a growth rate of over 50% is achieved in 2026, Google Cloud's revenue will be more than 4% higher than Morgan Stanley's current expectations and over 15% higher than the market consensus. In the most optimistic scenario (new backlog orders of $100 billion and on-demand business growth of 25%), the revenue growth rate of Google Cloud in 2026 could reach 64%.

Strategic Value in the AI Era

Morgan Stanley emphasizes that the sustainability of Google Cloud's growth will be a key driving force for the expansion of Alphabet's valuation multiples and the outperformance driven by AI.

From the composition of backlog orders, as of the third quarter of 2025, Google Cloud's quarter-end backlog orders reached $158 billion, a significant increase of $50 billion from $108 billion in the second quarter, and a year-on-year increase of $71 billion Morgan Stanley expects the backlog of orders in the fourth quarter to further increase to $199 billion, with a net addition of $106 billion for the entire year. Entering 2026, although the pace of new additions is expected to slow down, the base effect and sustained on-demand business growth will continue to support strong overall revenue growth.

This analysis highlights the strategic value of Google Cloud in the AI era, as well as the differentiated competitive advantage built by Alphabet through its self-developed TPU chips and Gemini models. For investors, the potential for Google Cloud's better-than-expected growth is an important cornerstone supporting Alphabet's current valuation and future upside