Alphabet's (GOOGL.US) Google Cloud is poised for explosive growth next year, with Morgan Stanley analysts forecasting that the division's revenue could increase by more than 50% by 2026.

In a recent report, Morgan Stanley analyst Brian Nowak informed investors that the firm's updated backlog model "outlines a path for Google Cloud to achieve over 50% revenue growth by 2026." This suggests "a mid-single-digit upside to our prior estimates and over 15% upside to consensus expectations."

Nowak emphasized that Morgan Stanley continues to view Google Cloud as "the core driver for Alphabet's valuation multiple expansion and AI-driven outperformance." The firm's new model breaks down Google Cloud's revenue into contributions from backlog and on-demand workloads.

Recent disclosures from Alphabet revealed that "approximately 55% of its $158 billion backlog as of Q3 2025 is expected to be recognized as revenue within the next two years." Historically, these backlog commitments have contributed "45%-50% of Google Cloud's revenue," with the remainder coming from on-demand workloads.

Morgan Stanley noted that the on-demand business grew "29% year-over-year in 2023 and 37% in 2024," with growth "around 25% year-to-date in 2025." Based on these trends, the firm's sensitivity analysis indicates that if Alphabet secures "over $50 billion in new net backlog additions" by 2026 while maintaining at least 15% growth in on-demand workloads, total cloud revenue could surpass 50% growth.

Nowak added that even under more conservative assumptions—"25% year-over-year growth in on-demand workloads" and "$20 billion in new backlog additions"—the model still supports the projection of over 50% revenue growth.