Morgan Stanley believes that, through a breakdown of Alphabet's Google Cloud revenue structure, even under relatively conservative assumptions, Google Cloud's revenue growth rate in 2026 is highly likely to exceed 50%, a projection that is approximately 15% higher than the market consensus.

According to sources, Morgan Stanley stated in a November 5 report that the market's general consensus may be significantly underestimating Google Cloud's growth potential. By analyzing Google Cloud's revenue structure—specifically the synergistic growth between "Backlog" and "On-demand" businesses—Morgan Stanley argues that even under conservative assumptions, Google Cloud's revenue growth in 2026 could surpass 50%. The continued outperformance of its cloud business will serve as a key catalyst driving Alphabet's valuation multiple expansion and AI-fueled stock outperformance.

**The Path to 50% Growth** Morgan Stanley breaks down Google Cloud's growth drivers into two components: Backlog (signed but not yet recognized as revenue) and On-demand (customer usage-driven non-backlog business). Historical data shows that Backlog has consistently accounted for 45-50% of Google Cloud's revenue, with the remainder driven by On-demand business. This implies that Google Cloud's On-demand business achieved year-over-year growth of 29% and 37% in 2023 and 2024, respectively, with growth in 2025 so far at around 25%.

Morgan Stanley's sensitivity analysis suggests that, as long as net new Backlog in 2026 reaches over $50 billion (far below the projected $106 billion for 2025) and On-demand growth remains above 15%, Google Cloud's revenue growth could exceed 50%. Even if On-demand growth stays at 25% and new Backlog is only $20 billion, revenue growth could still surpass 50%.

Specifically, every additional $20 billion in net Backlog growth for 2026 would contribute roughly 340 basis points to Google Cloud's revenue growth. Similarly, every 10-percentage-point increase in On-demand revenue growth would add about 5 percentage points to overall Google Cloud revenue growth.

Morgan Stanley's analysis indicates that if 2026 growth exceeds 50%, Google Cloud's revenue would be more than 4% higher than Morgan Stanley's current forecast and over 15% above market consensus. In the most optimistic scenario ($100 billion in new Backlog and 25% On-demand growth), Google Cloud's 2026 revenue growth could reach 64%.

**Strategic Value in the AI Era** Morgan Stanley emphasizes that the sustainability of Google Cloud's growth will be a key driver in expanding Alphabet's valuation multiples and delivering AI-driven outperformance.

Looking at Backlog composition, as of Q3 2025, Google Cloud's Backlog stood at $158 billion, up $50 billion quarter-over-quarter from $108 billion in Q2 and $71 billion year-over-year. Morgan Stanley expects Q4 Backlog to further increase to $199 billion, with full-year net new Backlog reaching $106 billion. Entering 2026, while the pace of new Backlog is expected to slow, base effects and sustained On-demand growth will continue to support strong overall revenue expansion.

This analysis highlights Google Cloud's strategic value in the AI era and Alphabet's differentiated competitive advantage through its in-house TPU chips and Gemini models. For investors, Google Cloud's potential for outperformance is a critical pillar supporting Alphabet's current valuation and future upside.