Most investors think of artificial intelligence (AI) as a software story: better models, smarter tools, and new applications. But behind every AI system is something far more important: the infrastructure. Every chatbot, recommendation engine, and enterprise AI tool runs using massive computing power somewhere. And that “somewhere” is increasingly becoming the cloud.
There it is alphabet (Google +0.37%) (GOOG +0.52%) We are now quietly building what could be one of our most important businesses.
Image source: Getty Images.
AI cannot scale without the cloud
AI doesn’t run alone. It requires huge amounts of data, storage, and processing power, not just once, but on an ongoing basis. After all, every AI interaction is unique, so software (such as ChatGPT) must perform a different calculation each time a user makes a request.
But most companies don’t build that infrastructure themselves. They have to rent it. That’s why cloud computing is so important. Every time a company trains a model, processes data, or deploys an AI application, it consumes computing power. And that demand is not flat. It increases exponentially as usage increases.
In other words, AI cannot scale without infrastructure, and infrastructure is one area where a lot of money is sitting.
Today’s changes
(0.37%) $1.18
current price
$318.50
Key data points
Market capitalization
$3.9 trillion
daily range
$311.06 – $319.53
52 week range
$146.10 – $349.00
volume
2.5K
average volume
34M
gross profit
59.68%
dividend yield
0.26%
Google Cloud is starting to show real momentum
For years, Google Cloud lagged behind its larger competitors, including: Amazon Web services (AWS) and microsoft Azure. That’s starting to change. The business is growing rapidly, with revenue up 48% year-over-year in the most recent quarter and annual operating rates exceeding $70 billion.
Just as important, the company has made a significant revenue contribution to Alphabet’s overall business, with operating profit more than doubling from $2.1 billion to $5.3 billion over the same period. This means not just growth for growth’s sake, but profitable and likely sustainable growth in the coming quarters, if not years, as demand for AI computing continues to soar.
If this trajectory continues, the cloud division will gradually increase its overall contribution to Alphabet’s underlying profits.
Why is Alphabet in a better position than it seems?
One thing you may not know about Alphabet is that its benefits go beyond just running data centers. In fact, it works across the entire AI stack.
- Custom chip (TPU)
- Leading AI models like Gemini
- Global data center network
- Complete enterprise cloud platform
This will allow Alphabet to offer a complete service to its customers. Companies are looking for more than just computing power. They want tools that allow them to efficiently build, train, and deploy AI without having to piece everything together themselves. Alphabet offers it all in one ecosystem. And that creates a powerful dynamic. This means increased usage of AI, increased demand for the cloud, and ultimately increased customer intimacy.
What does that mean for investors?
Alphabet built its reputation on search. But the next major growth engine may be behind the scenes. As AI adoption accelerates, the companies providing the infrastructure will become just as important as the companies building the models. Alphabet is not only a participant in that change, but a catalyst for it.
Still, while the opportunity is clear, execution remains critical. How big this business gets depends on a few key signals.
- Will Google Cloud maintain strong growth as AI adoption expands?
- Can Alphabet increase market share with the cloud?
- Does revenue increase with revenue?
These factors will determine whether cloud becomes a core part of Alphabet’s future, and investors should monitor these factors closely.
