Hyperscalers at the Inflection

The AI buildout is beginning to generate attractive returns for the largest hyperscalers, and their financial results are likely to improve faster than analysts expect.

• Alphabet, Amazon and Microsoft have lagged semiconductor and power-equipment stocks since March 2023 because investors doubt whether their AI capex will earn adequate returns.
• Revenue growth at Amazon Web Services, Google Cloud and Microsoft Azure accelerated by about 10 percentage points sequentially to 48% year-on-year in the latest quarter, versus roughly 40% during the 2021 cloud boom, despite a revenue base nearly four times larger.
• The three businesses added $13 billion of sequential revenue in the second quarter of 2026, while analysts still model a slowdown and may be underestimating Google’s future TPU sales, the compute capacity coming online in 2027–2028 and higher revenue per gigawatt.
• Profitability is already improving: Google Cloud’s operating margin reached 36%, up 15 percentage points year-on-year, and AWS reached 38%, up 5 points, even as depreciation from the infrastructure buildout increases.
• Adjusted for the lag between capex spending and capacity activation, Alphabet’s ROIC has expanded in each of the past three years, while Amazon’s has remained broadly stable despite a major increase in invested capital.

Takeaway: The largest hyperscalers appear better positioned than the market assumes because of their installed AI fleets, funded capacity roadmaps, custom silicon and proprietary managed services, but investors must monitor customer concentration—especially OpenAI and Anthropic—and the risk that supply growth outpaces demand.