Google's Cloud Backlog Hits $460 Billion as AI Demand Outstrips Supply

Alphabet reports Q1 net income of $62.6B, up 81%, driven by cloud revenue surging 63% and record ad sales, despite capacity constraints and soaring capex.

The technology giant delivered a quarter that left analysts scrambling to revise their models. Alphabet reported net income of $62.6 billion for the first quarter of 2026, an 81% surge from the same period last year, as revenue climbed to nearly $110 billion. The headline figure was inflated by a non-realized multibillion-dollar book gain from equity investments, but the underlying operational strength was unmistakable.

Shares jumped 6.75% on Thursday, touching a new all-time high of €320.45 in European trading before extending gains to over 7% and reaching €322.15 — a fresh 52-week peak. The stock has now advanced roughly 20% since the start of the year and more than 128% over the past twelve months.

Cloud Capacity Constraints: A High-Class Problem

Google Cloud emerged as the standout performer, with revenue accelerating 63% and operating profit nearly tripling to $6.6 billion. Yet the division is grappling with an unusual bottleneck: demand for computing power now exceeds what Alphabet can supply. Chief Executive Sundar Pichai acknowledged that cloud sales would have been even higher had the company been able to expand capacity more quickly.

The scale of unmet demand is reflected in the division's order backlog, which doubled from the prior quarter to surpass $460 billion. That figure represents contracted future revenue and underscores how deeply enterprises are committing to Google's cloud infrastructure for their AI workloads.

To close the capacity gap, Alphabet is pouring money into capital expenditure at an accelerating pace. First-quarter capex nearly doubled year-over-year to $35.7 billion, and management now expects full-year spending of up to $190 billion — a sharp upward revision from earlier guidance. The bulk of these outlays is flowing into servers and data centers.

Advertising Machine Shows No Signs of Fatigue

The doomsayers who predicted AI-generated search answers would cannibalize Google's core advertising business have been proven wrong — at least for now. The company recorded a record number of search queries during the quarter, driving advertising revenue up 16% to $77.3 billion. This marks the fourth consecutive quarter of double-digit growth in the ad segment.

Search-related revenue alone topped $60 billion, fueled by users increasingly engaging with AI-generated overviews. Alphabet has managed to cut the cost of delivering these compute-intensive responses by more than one-third, thanks to improvements in its Gemini model architecture.

Subscriptions Emerge as a Powerful Second Engine

Beyond advertising, Alphabet's subscription business is gaining serious momentum. The company now counts 350 million paying subscribers across services including YouTube, Google One, and the newly integrated Gemini AI plans. YouTube subscriptions are growing faster than the platform's advertising revenue, signaling a structural shift in how users pay for digital services.

Shareholders are also benefiting from a formal dividend increase to $0.22 per share, approved by the board.

Waymo Accelerates, Wiz Integration Begins

Outside the core businesses, Alphabet's autonomous vehicle unit Waymo is now completing 500,000 driverless trips per week — a milestone that underscores the division's rapid commercial deployment.

On the corporate development front, the recently completed acquisition of cybersecurity specialist Wiz will modestly pressure cloud operating margins for the remainder of the year as integration costs are absorbed.

What's Next

All eyes are now on the Google I/O developer conference scheduled for May 19, where the company traditionally unveils its next wave of AI and product innovations. With a record cloud backlog, a surging subscription base, and an advertising business that continues to defy expectations, Alphabet enters the event with considerable momentum — even as it races to build the infrastructure needed to keep pace with insatiable demand.