Google CloudNarrow moat

Alphabet (Google) (GOOGL) — moat facet

From a $5.6 billion loss to a 36% quarterly margin in five years; the depreciation still to come on the data centres decides whether that margin is earned or borrowed.

Google Cloud is Alphabet's only large business that does not sell advertising, and it is the fastest-improving business in the company. It lost $5,607 million in 20201 and earned $13,910 million of operating income in 20252. In the second quarter of 2026 it earned $8,814 million on $24,768 million of revenue, a margin of 35.6%, against 20.7% a year earlier34. Five years ago it was the part of Alphabet investors forgave; now it is the part they are paying for.

Google Cloud operating margin (%)5.2%202314.1%202423.7%202532.9%Q1 202635.6%Q2 2026Segment operating income over segment revenue. Form 10-K FY2025; Q1, Q2 2026 releases
Cloud's margin has risen nearly sevenfold in ten quarters, to within a few points of Google Services' roughly 42%.

Google came to cloud computing early and then spent a decade behind. It launched a preview of Google App Engine, a service for running web applications on Google's infrastructure, in April 20085. For most of the following decade the business struggled to win large companies. Diane Greene took charge of Google's cloud in 2015 after Google acquired her start-up, and in November 2018 she was replaced by Thomas Kurian, previously president of Oracle6, whose task was to turn technology Google was proud of into something large companies would buy. The productivity suite that businesses already paid for was renamed Google Workspace in October 20207. In March 2026 Google completed the purchase of the cloud security company Wiz for $32 billion in cash, a full year after the deal was announced and its largest acquisition ever8.

The line has two main parts. Google Cloud Platform charges consumption-based fees and subscriptions for infrastructure, platform and other services, including AI infrastructure, the Vertex AI platform, Gemini Enterprise, cybersecurity and data analytics; Google Workspace sells subscriptions to Gmail, Docs, Calendar, Drive and Meet9. Consumption pricing means revenue follows usage, and usage now follows capacity: Alphabet lists supply availability among the factors that move the line. The 2025 increase of $15.5 billion was "primarily driven by growth in Google Cloud Platform largely from infrastructure and platform services"10, which is the AI demand showing up in the accounts.

The profit history is the most dramatic in the company. As reported at the time, Cloud lost $5,607 million in 2020 and $3,099 million in 202111. On the basis Alphabet has used since 2023, it lost $1,922 million in 2022 and made $1,716 million in 202312, then $6,112 million in 2024 and $13,910 million in 202513. The operating margin went from about 5% in 2023 to 14% in 2024 and 23.7% in 2025, then to 32.9% in the first quarter of 202614. The cost lines show why. In 2025 Cloud's employee compensation rose to $22,078 million from $20,519 million, while its other costs, mostly the infrastructure it runs on, rose to $22,717 million from $16,598 million15. The business is turning from one that is expensive in people into one that is expensive in machines, and machines scale better.

The growth has accelerated rather than slowed with size. Cloud revenue was $4,056 million in 201716, so reaching $58,705 million in 2025 means compounding at about 40% a year; 2025 alone added 35.8%17. Then it sped up: 63% in the first quarter of 2026, to $20,028 million18, and 82% in the second. Google Cloud is still third in the market, with an estimated 15% share against about 28% for Amazon Web Services and 21% for Microsoft Azure19, but it is growing far faster than either. The revenue backlog tells the same story: $242.8 billion at the end of 202520 and $514 billion by the second quarter of 202621. Who filled that backlog, and how concentrated it is, is the subject of The Cloud Backlog and What Filled It under Major Clients, and the Anthropic agreement for up to a million TPUs22 has a page of its own there too.

The outlook depends on whether the capacity can be built fast enough and paid for at these margins. Alphabet spent $91.4 billion on property and equipment in 202523, much of it for data centres that Search, YouTube and Cloud share, and that spending turns into depreciation over the following years. Much of the charge that will land on Cloud is still ahead of it, and the Future Bets page on Cloud, TPUs & AI Infrastructure covers what the build-out is for.

Everything comes back to the operating margin. If it holds above 30% through 2027 while the new data centres are depreciated, Google Cloud is a second franchise with pricing power of its own. If it slides back toward the 14% of 2024 as the costs arrive, the growth was bought rather than earned, and the backlog will turn into revenue at a much thinner profit than the last two quarters suggest.

Moat trajectory: Widening

Operating margin rose from about 5% in 2023 to 23.7% in 2025 and 35.6% in the second quarter of 2026, while revenue growth accelerated to 82%. The backlog more than doubled in six months. The unresolved question is how much of the coming depreciation the margin can absorb.

The number that tests this moat
Moat Explorer calc
Google Cloud operating margin
23.7% (2025); 35.6% (Q2 2026)

From a $5.6B loss in 2020 to a 35.6% quarterly margin. If the margin holds above 30% through 2027 while new data centres are depreciated, Cloud is a second franchise; a slide back toward 2024's 14% would mean the growth was bought.

How it's calculated: Segment operating income ÷ segment revenue: $13,910m ÷ $58,705m (2025); $8,814m ÷ $24,768m (Q2 2026).
Source: Alphabet Form 10-K, FY2025; Q2 2026 earnings release ↗
References
  1. ReportedIt lost $5,607 million in 2020 and earned $13,910 million of operating income in 2025.
    Alphabet Form 10-K, FY2021 — revenues by type for 2020 and 2021 (Search & other $104,062m / $148,951m; YouTube ads $19,772m / $28,845m; Google Network $23,090m / $31,701m; Google other $21,711m / $28,032m; Google Cloud $13,059m / $19,206m; Other Bets $657m / $753m) and segment operating income as then reported (Google Cloud $(5,607)m / $(3,099)m; Other Bets $(4,476)m / $(5,281)m) — FY2020–FY2021 · publ. February 2, 2022 · source ↗
  2. ReportedIt lost $5,607 million in 2020 and earned $13,910 million of operating income in 2025.
    Alphabet Form 10-K, FY2025 — segment note and MD&A: operating income Google Services $95,858m / $121,263m / $139,404m on revenue of $272,543m / $304,930m / $342,721m; Google Cloud $1,716m / $6,112m / $13,910m, with employee compensation $19,054m / $20,519m / $22,078m and other costs $12,318m / $16,598m / $22,717m; Other Bets $(4,095)m / $(4,444)m / $(7,515)m; Alphabet-level activities $(9,186)m / $(10,541)m / $(16,760)m, primarily shared AI research and development (2023 / 2024 / 2025) — FY2023–FY2025 · publ. February 5, 2026 · source ↗
  3. ReportedIn the second quarter of 2026 it earned $8,814 million on $24,768 million of revenue, a margin of 35.6%, against 20.7% a year earlier.
    Alphabet Q2 2026 earnings release — quarter ended June 30, 2026 against 2025: Search & other $63,271m vs $54,190m; YouTube ads $11,055m vs $9,796m; Google Network $7,303m vs $7,354m; subscriptions, platforms, and devices $12,911m vs $11,203m; Google Cloud $24,768m vs $13,624m (+82%) with operating income $8,814m vs $2,826m; Google Services operating income $39,544m on $94,540m; Other Bets revenue $382m vs $373m and operating loss $(1,799)m vs $(1,246)m — Q2 2026 · publ. July 22, 2026 · source ↗
  4. Moat Explorer calcIn the second quarter of 2026 it earned $8,814 million on $24,768 million of revenue, a margin of 35.6%, against 20.7% a year earlier.
    Moat Explorer calculation from Alphabet's filed revenue and segment figures (Forms 10-K FY2019, FY2021, FY2022, FY2023, FY2025; Q1 and Q2 2026 releases) — growth rates, shares of revenue, compound annual growth, segment operating margins and loss-per-revenue-dollar ratios — FY2017–Q2 2026 · publ. Computed September 2026 · source ↗
  5. ReportedIt launched a preview of Google App Engine, a service for running web applications on Google's infrastructure, in April 2008.
    Google App Engine Blog, 'Introducing Google App Engine + our new blog' (April 7, 2008) — preview release launched at Campfire One — April 2008 · publ. April 7, 2008 · source ↗
  6. ReportedDiane Greene took charge of Google's cloud in 2015 after Google acquired her start-up, and in November 2018 she was replaced by Thomas Kurian, previously president of Oracle, whose task was to turn technology Google was proud of into something large companies would buy.
    CNBC, 'Google Cloud CEO Greene being replaced by former Oracle exec Kurian' (November 16, 2018) — Diane Greene became head of Google's cloud three years earlier after her start-up was acquired; Thomas Kurian was previously president of Oracle — November 2018 · publ. November 16, 2018 · source ↗
  7. ReportedThe productivity suite that businesses already paid for was renamed Google Workspace in October 2020.
    Google Workspace Blog, 'Introducing Google Workspace' (Javier Soltero, October 6, 2020) — G Suite's productivity apps brought together as Google Workspace — October 2020 · publ. October 6, 2020 · source ↗
  8. ReportedIn March 2026 Google completed the purchase of the cloud security company Wiz for $32 billion in cash, a full year after the deal was announced and its largest acquisition ever.
    TechCrunch, 'Google wraps up $32B acquisition of cloud cybersecurity startup Wiz' (March 11, 2026) — $32 billion in cash, a full year after the deal was announced; Google's biggest acquisition in its history — March 2026 · publ. March 11, 2026 · source ↗
  9. ReportedGoogle Cloud Platform charges consumption-based fees and subscriptions for infrastructure, platform and other services, including AI infrastructure, the Vertex AI platform, Gemini Enterprise, cybersecurity and data analytics; Google Workspace sells subscriptions to Gmail, Docs, Calendar, Drive and Meet.
    Alphabet Form 10-K, FY2025 — Item 7, how each revenue type is generated (Search & other incl. distribution-partner traffic, Gmail, Maps and Play; Network = AdMob, AdSense and Google Ad Manager; subscriptions = YouTube TV, Music and Premium, NFL Sunday Ticket, Google One; platforms = Google Play; devices = Pixel; Cloud = GCP consumption fees and subscriptions, Workspace; Other Bets = autonomous transportation and internet services), TAC paid to distribution and Google Network partners, content acquisition costs primarily related to YouTube, and Note 15's description of Other Bets — FY2025 · publ. February 5, 2026 · source ↗
  10. ReportedThe 2025 increase of $15.5 billion was "primarily driven by growth in Google Cloud Platform largely from infrastructure and platform services", which is the AI demand showing up in the accounts.
    Alphabet Form 10-K, FY2025 — Item 7 MD&A, revenue discussion: Search & other +$26.4 billion; YouTube ads +$4.2 billion, driven by direct response then brand advertising; Google Network −$567 million on lower AdSense, partly offset by AdMob; paid clicks +6%, cost-per-click +7%, Network impressions −7%, cost-per-impression +7%; subscriptions, platforms, and devices +$7.7 billion on paid subscriptions across YouTube services and Google One; Google Cloud +$15.5 billion on Google Cloud Platform infrastructure and platform services; Other Bets operating loss +$3.1 billion on a valuation-based compensation charge related to Waymo; cost of revenues up on TAC, content acquisition costs and depreciation — FY2025 against FY2024 · publ. February 5, 2026 · source ↗
  11. ReportedAs reported at the time, Cloud lost $5,607 million in 2020 and $3,099 million in 2021.
    Alphabet Form 10-K, FY2021 — revenues by type for 2020 and 2021 (Search & other $104,062m / $148,951m; YouTube ads $19,772m / $28,845m; Google Network $23,090m / $31,701m; Google other $21,711m / $28,032m; Google Cloud $13,059m / $19,206m; Other Bets $657m / $753m) and segment operating income as then reported (Google Cloud $(5,607)m / $(3,099)m; Other Bets $(4,476)m / $(5,281)m) — FY2020–FY2021 · publ. February 2, 2022 · source ↗
  12. ReportedOn the basis Alphabet has used since 2023, it lost $1,922 million in 2022 and made $1,716 million in 2023, then $6,112 million in 2024 and $13,910 million in 2025.
    Alphabet Form 10-K, FY2023 — revenues by type for 2022 (Search & other $162,450m, YouTube ads $29,243m, Google Network $32,780m, Google subscriptions, platforms, and devices $29,055m, Google Cloud $26,280m, Other Bets $1,068m) and recast segment operating income for 2022 (Google Cloud $(1,922)m, Other Bets $(4,636)m); Google DeepMind reported within Alphabet-level activities from the second quarter of 2023 — FY2022–FY2023 · publ. January 31, 2024 · source ↗
  13. ReportedOn the basis Alphabet has used since 2023, it lost $1,922 million in 2022 and made $1,716 million in 2023, then $6,112 million in 2024 and $13,910 million in 2025.
    Alphabet Form 10-K, FY2025 — segment note and MD&A: operating income Google Services $95,858m / $121,263m / $139,404m on revenue of $272,543m / $304,930m / $342,721m; Google Cloud $1,716m / $6,112m / $13,910m, with employee compensation $19,054m / $20,519m / $22,078m and other costs $12,318m / $16,598m / $22,717m; Other Bets $(4,095)m / $(4,444)m / $(7,515)m; Alphabet-level activities $(9,186)m / $(10,541)m / $(16,760)m, primarily shared AI research and development (2023 / 2024 / 2025) — FY2023–FY2025 · publ. February 5, 2026 · source ↗
  14. Moat Explorer calcThe operating margin went from about 5% in 2023 to 14% in 2024 and 23.7% in 2025, then to 32.9% in the first quarter of 2026.
    Moat Explorer calculation from Alphabet's filed revenue and segment figures (Forms 10-K FY2019, FY2021, FY2022, FY2023, FY2025; Q1 and Q2 2026 releases) — growth rates, shares of revenue, compound annual growth, segment operating margins and loss-per-revenue-dollar ratios — FY2017–Q2 2026 · publ. Computed September 2026 · source ↗
  15. ReportedIn 2025 Cloud's employee compensation rose to $22,078 million from $20,519 million, while its other costs, mostly the infrastructure it runs on, rose to $22,717 million from $16,598 million.
    Alphabet Form 10-K, FY2025 — segment note and MD&A: operating income Google Services $95,858m / $121,263m / $139,404m on revenue of $272,543m / $304,930m / $342,721m; Google Cloud $1,716m / $6,112m / $13,910m, with employee compensation $19,054m / $20,519m / $22,078m and other costs $12,318m / $16,598m / $22,717m; Other Bets $(4,095)m / $(4,444)m / $(7,515)m; Alphabet-level activities $(9,186)m / $(10,541)m / $(16,760)m, primarily shared AI research and development (2023 / 2024 / 2025) — FY2023–FY2025 · publ. February 5, 2026 · source ↗
  16. ReportedCloud revenue was $4,056 million in 2017, so reaching $58,705 million in 2025 means compounding at about 40% a year; 2025 alone added 35.8%.
    Alphabet Form 10-K, FY2019 — revenues by type for 2017, 2018 and 2019: Search & other $69,811m / $85,296m / $98,115m; YouTube ads $8,150m / $11,155m / $15,149m; Google Network Members' properties $17,616m / $20,010m / $21,547m; Google Cloud $4,056m / $5,838m / $8,918m; Google other $10,914m / $14,063m / $17,014m; Other Bets $477m / $595m / $659m; total $110,855m / $136,819m / $161,857m — FY2017–FY2019 · publ. February 4, 2020 · source ↗
  17. Moat Explorer calcCloud revenue was $4,056 million in 2017, so reaching $58,705 million in 2025 means compounding at about 40% a year; 2025 alone added 35.8%.
    Moat Explorer calculation from Alphabet's filed revenue and segment figures (Forms 10-K FY2019, FY2021, FY2022, FY2023, FY2025; Q1 and Q2 2026 releases) — growth rates, shares of revenue, compound annual growth, segment operating margins and loss-per-revenue-dollar ratios — FY2017–Q2 2026 · publ. Computed September 2026 · source ↗
  18. ReportedThen it sped up: 63% in the first quarter of 2026, to $20,028 million, and 82% in the second.
    Alphabet Q1 2026 earnings release — quarter ended March 31, 2026 against 2025: Search & other $60,399m vs $50,702m; YouTube ads $9,883m vs $8,927m; Google Network $6,971m vs $7,256m; subscriptions, platforms, and devices $12,384m vs $10,379m; Google Cloud $20,028m vs $12,260m with operating income $6,598m vs $2,177m; Other Bets revenue $411m vs $450m and operating loss $(2,100)m vs $(1,226)m — Q1 2026 · publ. April 2026 · source ↗
  19. Third-party estimateGoogle Cloud is still third in the market, with an estimated 15% share against about 28% for Amazon Web Services and 21% for Microsoft Azure, but it is growing far faster than either.
    Synergy Research / market share data — Q2 2026 global cloud infrastructure share: AWS ~28%, Microsoft Azure ~21%, Google Cloud ~15%; Azure growing ~40% year on year against AWS ~28% — Q2 2026 · publ. 2026 · source ↗
  20. ReportedThe revenue backlog tells the same story: $242.8 billion at the end of 2025 and $514 billion by the second quarter of 2026.
    Alphabet Form 10-K, FY2025 — "As of December 31, 2025, we had $242.8 billion of remaining performance obligations ('revenue backlog'), primarily related to Google Cloud"; revenue backlog represents commitments in customer contracts not yet recognised as revenue. Traffic acquisition costs (TAC) of $54,900 million for 2025; Google Cloud revenue $43,229 million — FY2025 · publ. February 2026 · source ↗
  21. ReportedThe revenue backlog tells the same story: $242.8 billion at the end of 2025 and $514 billion by the second quarter of 2026.
    CNBC live coverage of Alphabet's Q2 2026 results and call (July 22, 2026) — Cloud revenue up 82% to $24.8 billion with a cloud backlog of $514 billion; YouTube ads up 13%; Q2 capex $44.9 billion, up 100%; 2026 capex guidance raised to $195-205 billion from $180-190 billion — Q2 2026 (quarter ended June 30, 2026) · publ. July 22, 2026 · source ↗
  22. ReportedWho filled that backlog, and how concentrated it is, is the subject of The Cloud Backlog and What Filled It under Major Clients, and the Anthropic agreement for up to a million TPUs has a page of its own there too.
    Google Cloud / Anthropic — agreement expanding Anthropic's use of Google Cloud TPUs: up to 1 million TPUs, over 1 GW of capacity, valued in the tens of billions (Oct 23, 2025) — Oct 2025 · publ. Oct 23, 2025 · source ↗
  23. ReportedAlphabet spent $91.4 billion on property and equipment in 2025, much of it for data centres that Search, YouTube and Cloud share, and that spending turns into depreciation over the following years.
    Alphabet Form 10-K, FY2025 — cost of revenues table: TAC $54,900 million (2024) and $59,926 million (2025), TAC rate down from 20.7% to 20.3%; cash flow statement: purchases of property and equipment $32,251m (2023), $52,535m (2024) and $91,447m (2025); Google Network revenues $30,359m (2024) and $29,792m (2025) — FY2025 (year ended December 31, 2025) · publ. February 5, 2026 · source ↗
Sources
Generated September 16, 2026