Google Q4 Earnings Preview: Cloud Growth Is Make or Break. Will Microsoft’s 10% Plunge Repeat?

TradingKey - On Feb. 4, Eastern Time, Google, the top performer among the 'Magnificent Seven' tech giants last year, will release its Q4 earnings report.

According to Bloomberg analyst forecasts, Google is expected to deliver strong results across multiple financial metrics: Q4 revenue is projected to grow 16% year-over-year to $95.08 billion; adjusted net profit is expected to increase 19% to $38.55 billion; and GAAP earnings per share is forecast to rise 23% to $2.65.

Ahead of the earnings release, market expectations have reached a fever pitch: as of Jan. 29, options trading for Google Class A shares was highly active, with total daily volume reaching 4.07 million contracts. Call options accounted for nearly 70% of the total volume, with some traders even betting that the stock would surge to $360 post-earnings. On Monday Eastern Time, Google Class A shares (GOOGL) and Class C shares (GOOG) both hit record highs, closing at $344.83 and $345.17, respectively.

However, the market's hyper-optimistic expectations also mean that if Google fails to outperform this time, Microsoft's (MSFT) single-day 12% plunge serves as a cautionary tale.

Microsoft Plunges 12%, Wiping Out $430 Billion in Market Value as Cloud Growth Slows

On January 29, Eastern Time, Microsoft's stock plummeted more than 12% intraday, with its market capitalization evaporating by approximately $430 billion at one point, marking the second-largest single-day market cap loss in U.S. stock market history, trailing only Nvidia (NVDA) which suffered a $593 billion market cap loss in January 2025 due to concerns surrounding DeepSeek. Microsoft ultimately closed down 9.99%, its steepest closing decline since March 2020.

Analysts believe the direct cause of Microsoft's epic plunge is that growth in its cloud business (including Azure) failed to justify its excessive capital expenditures.

Looking strictly at the figures, Microsoft actually delivered an impressive earnings report: for the second quarter of fiscal year 2026, revenue reached $81 billion, a 17% year-over-year increase, while non-GAAP earnings per share (EPS) stood at $4.41, up 23% year-over-year—both figures beating market expectations.

Its core cloud business revenue grew 39% year-over-year (38% in constant currency), a 1-percentage-point deceleration from the previous quarter. In contrast, Microsoft's Q2 capital expenditure surged 66% year-over-year to a record $37.5 billion, exceeding consensus estimates by 9%.

This sparked market dissatisfaction: with core business growth losing steam while spending intensifies, what exactly has Microsoft been doing this quarter? Furthermore, Microsoft's guidance for next quarter's cloud revenue growth is even lower than Q2 at 37%-38%, suggesting the growth slowdown will persist.

In fact, Microsoft executives provided a detailed explanation for the deceleration in Azure and other cloud services: the company prioritized allocating computing resources to internal R&D projects like Copilot and its primary partner OpenAI, rather than prioritizing Azure's demands. Had Microsoft not made such capacity allocations over the past two quarters, Azure's revenue growth rate would have exceeded 40%.

However, the market was clearly unimpressed, as the 12% single-day stock plunge served as a direct reaction to these figures. Since 2025, driven by surging demand for AI infrastructure, major tech companies have been expanding capital expenditures; yet, this increasingly unbridled expansion has made investors more sensitive. Currently, the market is not only looking at how much a company can spend, but more importantly, when those substantial investments will yield returns and translate into bottom-line profit growth.

Why is the cloud business so important?

The reason the slowdown in Azure's growth has become a major bombshell for the stock price is that Azure is Microsoft's core business and the reason the market values it as a cloud company with a high valuation. Furthermore, regardless of how much capital Microsoft pours into AI infrastructure, it ultimately relies almost entirely on Azure to convert AI technology into actual revenue. Microsoft's other profitable businesses—Office and Windows—are already mature and no longer represent the company's future growth.

Currently, cloud services have become a "must-win battleground" for major tech companies because the cloud has become the foundation of the digital age, as vital as oil, electricity, and land. If a company needs to train AI models, it must rent computing power from cloud service providers, store data in the cloud, and use various cloud-integrated AI tools for application development.

Currently, the cloud business presents a three-way rivalry: Amazon (AMZN) AWS holds the largest market share but is being steadily eroded; Microsoft Azure enjoys the advantage of its exclusive partnership with OpenAI, making it the preferred choice for enterprises; although Google Cloud (GCP) has the smallest share, its growth is stable, and with the release of Gemini 3 and the maturity of its proprietary TPU chips, its advantages are increasingly evident.

Q4 Earnings Imminent: Will Google Cloud Deliver a Negative Surprise?

Bloomberg data shows the market expects Google Cloud revenue to grow 35.4% year-over-year in Q4. In the previous quarter, Google's cloud revenue grew 34% YoY to $15.16 billion; as of the end of Q3, its backlog grew 46% quarter-over-quarter and 82% YoY, reaching $155 billion.

Citigroup (C) Analysts believe Google's growth momentum this quarter is primarily driven by its Gemini large language model, TPUs, and the cloud backlog from Q3. Specific analysis suggests that, given the massive backlog, Google Cloud's revenue can maintain a growth rate of over 30% for some time.

However, a large backlog does not equate to immediate high revenue; the key lies in the conversion speed. This speed is influenced by factors such as the rollout progress of customer projects, the delivery speed of computing resources, and the duration of customer contracts.

Currently, the overall tightness in computing power resources is a primary factor constraining capacity. Microsoft's Azure growth slowed due to this drag, and it remains uncertain whether Google will face a similar situation. If Google experiences severe shortages or delivery delays of Nvidia GPUs or its in-house TPUs, the overall order conversion speed could be hindered. Conversely, if Google expands capacity by deploying its own TPUs on a large scale—especially the advanced v6 and v7 chips—it may achieve conversion speeds that outpace its peers.

Additionally, focus should remain on new orders this quarter, as these will determine Google's future revenue "reserves." Morgan Stanley (MS) Analyst Brian Nowak predicts that Google Cloud's revenue will reach approximately $58 billion in 2025 and achieve 44% YoY growth in 2026. If Google can secure more large-scale cloud deals, the growth rate could potentially hit 50%, primarily driven by new backlog additions.

Beyond order size, the improvement in cloud business margins is also key. In Q2 2025, Google Cloud's margins reached 20.7%, up from 11.3% in the same period a year earlier. By Q3 2025, the margin had surpassed 23.7%, compared to 17.1% the previous year.

Currently, Google Cloud's profit margins are lower than those of its peers. In the same period that Google reported a 20.7% margin, Amazon's AWS reached 34.6% in Q3 2025, and Microsoft Azure and other cloud services reached a margin of 43% in Q1 of fiscal 2026. However, Google's steady improvements over recent quarters continue to provide the market with ample confidence.