Google Cloud surpasses $20 billion, but says growth has been limited by capacity

Google Cloud, the subsidiary of parent company Alphabet that provides AI solutions for enterprises, saw great success in the first quarter, with revenue exceeding $20 billion at the time, an increase of 63% from the same period last year. However, investors were concerned about the constraints surrounding the business and how Google decides to allocate cloud capacity.

In the first quarter of 2026, the company said its cloud growth was driven by strong performance in Google Cloud Platform, which grew at a higher rate than the overall revenue growth of the Google Cloud division. (The Cloud segment includes a variety of services such as infrastructure, data analytics, AI/ML tools, and Google Workspace.)

Alphabet CEO Sundar Pichai told analysts on a Q1 2026 earnings call on Wednesday that the growth came from “strong demand” for Gemini Enterprise and its AI solutions, and pointed to increased demand for infrastructure, including TPU hardware and data centers.

AI solutions were the biggest driver of cloud growth, with products built on Google’s generative AI models achieving nearly 800% year-over-year growth. Google Gemini Enterprise also grew 40% quarter-on-quarter, and growth of AI tokens via its API grew to 16 billion tokens per minute, up from 10 billion in the fourth quarter, the company said.

Pichai pointed to other cloud milestones, including a doubling of new customer acquisitions year-over-year, and deal momentum that doubled the number of deals from $100 million to $1 billion year-over-year, with the company signing multiple “billion-dollar” deals. Clients also exceeded their initial commitments by 45% on a quarterly basis, he said.

However, the CEO cautioned that there are limits to this growth, noting that Google Cloud’s backlog more than doubled this quarter to $462 billion. He called this a positive for the company, noting that it shows how different Google Cloud is from other competitors.

“We are clearly compute-constrained in the near term,” Pichai said. “For example, our cloud revenues could have been higher if we could meet that demand. So we’re working through that moment, investing, but we have a strong, long-term planning framework… We see exceptional opportunities in the future,” he added.

The company said it expects to complete 50% of the backlog in the next 24 months.

A large portion of the company’s potential revenue comes from providing infrastructure through the cloud and, with some customers, from the direct sale of TPU devices as well. Pichai told investors that Google takes an approach that takes into account return on invested capital (ROIC), which helps it continue to properly invest in “cutting-edge technologies.”