Investors who exited high-profile hyperscaler stocks because of surging AI capex may be overlooking an important point: Tech giants’ cloud computing backlogs support their strong spending plans.
Quick analysis: Across the top four cloud service providers, cloud computing backlogs now exceed a whopping $2.3 trillion, which is up 16% from the first quarter, according to Bank of America analyst Vivek Arya.
Notably, Microsoft (MSFT) reported commercial remaining performance obligations (its backlog) grew 8% sequentially to $678 billion in the second quarter, with only 30% recognized within the next 12 months.
Oracle (ORCL) disclosed $638 billion of remaining performance obligations in its most recent quarter, with just 12% due in one year and 34% in two to three years.
Amazon’s (AMZN) AWS business disclosed $496 billion of backlog — up over 100% year over year — in its second quarter, while Google (GOOG) Cloud backlog grew to about $514 billion, versus about $460 billion in Q1.
“Compute remains mostly supply constrained today, and we see increased hyperscale appetite to continue investing in capacity — backed by customer commitments and quickly accelerating AI sales,” Arya wrote.
The high-level look: Investor concern around how much tech is spending on AI capex is understandable. Not only are the numbers large, but they seem to be growing larger by the day, with no peak in sight.
“Overall, we now see 2026 hyperscaler capex at over $860 billion (+80% year over year) and see a path toward about $1.2 trillion (+38% year over year) capex by 2027, with sales likely to continue improving,” Arya explained. “Declining free cash flow remains a concern, but we see negative free cash flow margin to max out around -5-6% in 2027-2028, before likely returning to healthy profitability as AI investments proliferate.”
The bottom line: The market may not care about this point right now, as investors would like executives to rein in the spending a bit.
But at some point soon, this point could matter, given the valuation pullbacks on companies clearly leading on lucrative cloud computing deals. By then, these stocks may have risen by double-digit percentages!
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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