Big Tech is heading into a busy earnings week with investors focused less on topline results and more on whether rising AI spending is translating into cloud revenue, according to market commentary cited in the release.
In a note attributed to Josh Gilbert, Lead Analyst for APAC and the Middle East at eToro, the publication says the market is “not in the mood to give AI spending the benefit of the doubt” as sentiment around artificial intelligence investment tightens.
Cloud growth seen as the key test
The release argues that for Amazon, Alphabet and Microsoft, investors will likely look first to their cloud businesses as evidence that large AI-related spending is paying off. It notes that the three cloud units currently generate roughly USD 385 billion per year collectively, while Wall Street expectations cited in the release point to near USD 580 billion in AI-related spending across the companies this year and more than USD 800 billion in 2027.
It also claims that Amazon’s free cash flow has been negative over the past 12 months, describing the implication as spending going out faster than cash is coming back.
Performance benchmarks for each company
The release highlights different hurdles for each hyperscaler based on recent cloud performance and forward guidance.
- Alphabet and Google Cloud: The release says Google Cloud “set the pace last quarter” with growth of 82%, versus Azure at 42% and AWS at 37%. It adds that Alphabet faces what it describes as the highest bar among the three, and says its shares were trading around 20% below their record high despite the cloud growth. The release frames Alphabet’s challenge as demonstrating that AI investment is not squeezing margins in its search business.
- Amazon and AWS: The release says Amazon needs to show that its heavy spending is still lifting AWS growth, pointing to AWS having its fastest quarter in four years.
- Microsoft and Azure: The release describes Microsoft’s capacity situation as constrained demand, stating it “hasn’t had enough computing power” to keep up with Azure demand. It notes Microsoft already guided to Azure growth of 44% to 45% this quarter, and says the next quarter’s guidance will be watched for signs that new capacity can convert a waiting list into revenue.
Why investors will watch this week
According to the release, AI spending is not expected to slow down, so attention will turn to whether cloud growth can keep pace. It concludes that hyperscalers showing money flowing back from AI-enabled infrastructure could “quickly separate” from the rest of what it refers to as the AI trade.
The release does not provide specific earnings dates, results, or company statements, and it frames the discussion as analyst commentary ahead of the companies’ earnings.
