Morgan Stanley: Global cloud capital expenditures are expected to surge by 29% in 2027, as the four giants face capacity crises under the pressure of computing power hunger.

Morgan Stanley's latest Global Cloud Capital Expenditure Tracker report indicates that capital expenditures by the world's largest hyperscale cloud providers have not slowed down, with a projected year-on-year increase of 29% by 2027. Morgan Stanley notes that the market consensus for cloud capital expenditures in 2027 is $1.2 trillion, although this forecast may be conservative, with actual spending potentially rising to $1.4 trillion. Over the past year, investors have been increasingly concerned about the sharp rise in capital expenditures associated with the large-scale construction of AI data centers, leading to some market volatility. However, the demand for computing power continues to exceed supply, and the ability to monetize AI continues to improve. In this context, three of the four major hyperscale cloud providers globally have raised their capital expenditure guidance for the fiscal year 2026: Amazon.com, Inc. (AMZN.US) raised its guidance from $200 billion to $220 billion; Alphabet Inc. Class C (GOOGL.US) narrowed its guidance range from $180 billion-$190 billion to $195 billion-$205 billion; and Meta (META.US) narrowed its range from $125 billion-$145 billion to $130 billion-$145 billion. Microsoft Corporation (MSFT.US) maintained its guidance at $190 billion. The Morgan Stanley analyst team led by Erik Woodring noted in a detailed report: "All four U.S. hyperscale cloud providers emphasized that capacity remains under pressure. Alphabet Inc. Class C stated that demand continues to exceed its internal supply capability, Microsoft Corporation reiterated that Azure demand is above available capacity, Amazon.com, Inc. indicated that capacity in 2026 will still not meet demand, with most of that years capacity already booked in advance, and Meta expects industry computing power supply to remain tight for the foreseeable future." The demand for computing power is driving robust revenue growth. Microsoft Corporation's Azure revenue saw a year-on-year growth rate of 43%, Alphabet Inc. Class C's cloud revenue surged by 82%, and Amazon.com, Inc.'s AWS revenue grew by 37%, marking the largest increase in 18 quarters. Confidence in capital returns is also rebounding. Woodring stated: "The management teams at the hyperscale providers convey that despite the rapid rise in investment scale, confidence in future returns remains high. Alphabet Inc. Class C noted strong long-term demand indicators, an increasing backlog of commitments, and active contract renewals, even with higher-cost third-party capacity, clients still achieve significant returns. Microsoft Corporation emphasized that factors such as TAM expansion, infrastructure efficiency improvements, application layer optimization, chip innovation, model diversification, and pricing power are continually enhancing its confidence. Amazon.com, Inc. pointed out that most AI capacities are under multi-year contracts, and server investments can achieve breakeven within three years, thereafter generating significant free cash flow, with management now seeing substantial long-term revenue growth potential for AWS."