In Q2, cloud providers' revenue and backlog both hit record highs; Bernstein is bullish on Amazon and Microsoft, while CoreWeave's revenue doubled but it is still viewed bearishly.

Note that in Q2 2026, global cloud giants collectively accelerated: Amazon.com, Inc. AWS growth hit an 18-quarter high, Alphabet Inc. Class C cloud surged 82%, and Oracle Corporation OCI doubled. Investment bank Bernstein believes cloud market demand still far exceeds supply, with the bottleneck shifting from GPU supply to power-enabled data center physical capacity, while the returns on massive capital expenditure and financing methods are becoming the new deciding factors. The four major cloud providers' single-quarter capital expenditure was about $150 billion, with total backlog of $2.33 trillion. The research report estimates that in Q2 2026, Microsoft Corporation, Amazon.com, Inc. (AMZN.US), Alphabet Inc. Class C (GOOGL.US), and Oracle Corporation (ORCL.US) combined cash capital expenditure was about $150 billion; the bank's model projects full-year 2026 at $660 billion, approaching $800 billion when including Meta. In the same period, AWS, Azure, Alphabet Inc. Class C cloud, and OCI combined cloud revenue was $105 billion, up 52% year-over-year; the four companies' total remaining performance obligations (RPO) reached $2.33 trillion, up 188% year-over-year. The bank estimates the hyperscale cloud market size at $1.3 trillion to $1.5 trillion, making it the largest tangible market in software and internet. On financing structure, except for Microsoft Corporation, the other U.S. cloud giants have all turned to external financing such as bond issuance or secondary offerings this year. Can massive capital expenditure deliver returns? Runaway capital expenditure and AI bubble concerns, with Anthropic CEO's call to slow frontier model development further intensifying market doubts. In response to concerns about runaway capital expenditure and AI bubble formation, the bank notes that cloud providers' revenue and backlog have accelerated in tandem in recent quarters, with demand continuing to outpace supply. The research report cites Amazon.com, Inc.'s return on investment framework: data center shells are invested about two years in advance, generating revenue for over 30 years; servers are procured only months before deployment, paying back in 2 to 3 years, while contract terms are 5 to 6 years, and subsequent generation equipment can reuse the facilities, with economics improving each generation. AWS average contract duration has risen to 6.4 years, most 2027 capacity is locked in, and orders are booked into 2028. Regarding Anthropic CEO's call to slow frontier model development, the bank notes it relates to hyperscale cloud providers' revenue growth and margin outlook. The bank believes AI will drag on IaaS and PaaS gross margins at least during the construction period, with the core variable being the actual useful life of GPUs. Amazon.com, Inc. in 2025 already lowered the depreciation life of some servers from 6 years to 5 years; Microsoft Corporation raised data center depreciation life from 15 years to 25 years, reducing calendar 2026 capital expenditure from $190 billion to $175 billion, but the company emphasized this is only an accounting adjustment and did not cut hardware investment. Oracle Corporation passes through component price increases such as memory to customers through contract terms, and disclosed that old GPUs from 3 to 4 years ago are being renewed at prices about 20% higher. Microsoft Corporation management also recently stated that AI business margins will approach non-AI business margins over the long term. New cloud model difficult to sustain The report positions CoreWeave as a "transitional capacity provider": benefiting from power and GPU scarcity, but with customer concentration, buyer self-build tendencies, and constrained return structure. Once data center capacity eases, it will be hit first and hardest. Although CoreWeave 2Q26 revenue was $2.58 billion (up 112% year-over-year), backlog about $104 billion (up 246% year-over-year), and prices raised about 25% across the board in July, Bernstein still gives it an "underperform" rating with a target price of $74. Hyperscale cloud giants continue to benefit The bank maintains Amazon.com, Inc. "outperform" with a target price of $320. The bank notes AWS grew 37% in Q2, the fastest in 18 quarters, accelerating about 9 percentage points quarter-over-quarter; backlog reached $496 billion, including the approximately $100 billion Anthropic agreement signed in April; AI revenue annualized at $25 billion, up sharply from $15 billion a quarter earlier; proprietary chip annualized revenue $25 billion. Management on the earnings call laid out a path for AWS toward $1 trillion in annual revenue. Microsoft Corporation also maintains an "outperform" rating with a target price of $660. The bank emphasizes Microsoft Corporation guides to positive free cash flow in fiscal 2027 without additional borrowing, a differentiated advantage. Oracle Corporation maintains an "outperform" rating with a target price of $325. The company's OCI revenue was $7.4 billion, up 121% year-over-year; RPO reached $664 billion, of which OpenAI accounts for about $300 billion; the company guides FY30 OCI revenue of $166 billion, with 10GW of capacity to come online over the next three years; FY27 capital expenditure guidance of $90 billion to $95 billion, including $20 billion to $25 billion in customer prepayments. The bank notes the company's peak cash need is expected in fiscal 2028. Alphabet Inc. Class C, once the third-place cloud player, has become the strongest AI cloud competitor through vertical integration of proprietary models plus in-house TPUs, but Bernstein gives it the most cautious rating among its five covered names. It maintains Alphabet Inc. Class C "market perform" with a target price of $385, the only U.S. giant among the five not rated "outperform." The bank also notes that Gemini 3.5 Pro's delayed release, and the company renting third-party infrastructure due to its own capacity constraints, will pressure margins.