Alphabet Stock Investors: Here's the Most Important Metric to Follow

Since hitting a fresh all-time high in May, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) shares have traded 15% lower (as of June 25). However, they have still more than doubled in the past 12 months.

At this point, investors probably don't need much convincing to buy this "Magnificent Seven" stock. It's a dominant force in the internet economy. And it's in a great position to benefit from the artificial intelligence (AI) boom.

While there are numerous data points that can help investors gauge the company's performance, here's the most important metric to follow right now.

Image source: The Motley Fool.

Investors' heads are in the clouds

Because of Google Cloud, Alphabet is considered a hyperscaler. The segment builds data centers and delivers computing, storage, and networking solutions to enterprise clients. Its success has been notable in recent years. The cloud platform is becoming a bigger contributor to the company's overall financial success.

During the first quarter, Google Cloud's revenue soared 63% year over year to $20 billion, marking a notable acceleration compared to the 48% increase in Q4 2025 and 28% rise in the first quarter of 2025. Q1 operating income jumped 203%.

But the most important number investors should keep tabs on is Google Cloud's backlog, which almost doubled quarter over quarter to $462 billion. That's almost six times greater than the $80 billion in annualized revenue for the entire segment. It's obvious that the AI tools and infrastructure that Google Cloud is able to offer have incredible demand from enterprise customers.

"We expect to recognize just over 50% of the backlog as revenue over the next 24 months," CFO Anat Ashkenazi said on the Q1 2026 earnings call.

Investors should look at the details. Data from August 2023 revealed that 70% of generative AI unicorns (valuations of at least $1 billion) were customers, whose business models are probably unproven. However, Google Cloud's roster also includes established non-tech leaders like Home Depot, Wells Fargo, and Unilever, raising the quality of the customer base.

What is the market thinking about?

Google Cloud's first-quarter revenue and operating income represented 18.2% and 16.6%, respectively, of Alphabet's total. These figures are small today, but they have climbed dramatically. In my view, this segment is what the market is most focused on these days. Consequently, Google Cloud's performance likely has a huge impact on Alphabet's stock valuation.

This is precisely why it's critical to pay attention to how the segment's backlog changes in the future. If it continues to grow, it's a clear signal that Alphabet's enormous capital expenditures, set to total $185 billion (at the midpoint) this year and expected to increase meaningfully in 2027, are justified.

If the backlog shrinks or growth starts to moderate, the market will get jittery. And this could quickly hit the stock price. Investors will begin to wonder if all the AI-related spending will produce an adequate return.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Home Depot. The Motley Fool recommends Unilever. The Motley Fool has a disclosure policy.