Morgan Stanley sees cloud spending reaching $1.2 trillion in 2027

Investing.com -- Morgan Stanley analysts said consensus estimates for cloud capital expenditure in 2027 now track to approximately $1.2 trillion, representing about 30% year-over-year growth. This figure is $170 billion higher than estimates made before second-quarter 2026 earnings.

All four major U.S. hyperscalers remain supply constrained, with demand from external cloud customers and internal AI workloads exceeding available capacity, according to the firm's analysis.

Three of the four U.S. hyperscalers raised their 2026 capital spending guidance. Alphabet (NASDAQ: GOOGL) increased its 2026 capex guidance to $195-$205 billion from $180-$190 billion, citing an acceleration in capacity delivery to meet demand that continues to outpace supply. Amazon (NASDAQ: AMZN) raised its 2026 cash capex to approximately $220 billion from $200 billion, with memory cost inflation cited as a factor. Meta (NASDAQ: META) narrowed its range to $130-$145 billion from $125-$145 billion. Microsoft's (NASDAQ: MSFT) underlying 2026 spend remains unchanged at approximately $190 billion.

Cloud revenue growth accelerated despite capacity limits as utilization improves, AI services scale, and AI adoption drives broader infrastructure consumption. Azure grew 43% year-over-year, with management attributing the increase to efficiency gains across CPU and GPU fleets. Google Cloud Platform grew 82% year-over-year, driven by enterprise AI products and AI infrastructure services. Amazon Web Services delivered 37% year-over-year growth, its fastest rate in 18 quarters.

Morgan Stanley believes the consensus estimate of 29% year-over-year growth in 2027 may be too conservative, as it implies non-AI cloud capex growth of just 7% year-over-year in 2027. The firm's own aggregate cloud cash capex estimate is $1.4 trillion, 17% above consensus.

Hyperscalers expressed greater confidence in 2026-2027 return on invested capital, supported by rising backlogs, multi-year commitments, pricing power, and efficiency gains. Amazon emphasized that most AI capacity is contracted on multi-year terms, with server investments achieving breakeven in less than three years.

Strong operating cash flow, equity and debt financing, leasing strategies, custom chips, and infrastructure efficiencies are helping fund capex while easing free cash flow pressure, the firm noted.

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