
FCF bottoming out as capex moderates. Street expects capex growth to moderate in FY27F and decelerate sharply in FY28F. Allianz Trade’s economic research projects 51% capex growth in 2026, slowing to just 5% by 2028 as hyperscalers digest an extraordinary base of prior investment1. Most hyperscalers offering cloud services are struggling to cope with the rising demand for computing power, with only Meta (which does not offer cloud services) having some excess computing power available to lease out.
However, adoption of open-weight AI models from Alibaba, DeepSeek, Zhipu, etc. has gained traction over the last two months. Given that their models consume much lower computing power per token than frontier AI models, wider adoption could slow hyperscalers’ FY27F capex growth, leading to a FCF beat. ROI (EBIT/Capex) is also expected to follow FCF with a lag, depending on the pricing power and the ability to reduce operating costs. Amazon, for example, has raised reserve compute prices for three consecutive quarters, including a further 20% increase effective 1 Jul 2026. Management also expects its Trainium chips to deliver tens of billions of dollars in annual capex savings and several hundred basis points of margin expansion.
Quarterly results exceeded expectations. Alphabet’s 1Q26 normalised EBIT of USD39.7bn (+30% y/y, +4% q/q) was c.9% above consensus. Alphabet's Google Cloud revenue was up 63% y/y with margins expanding to 33% (vs 30% in 4Q25), prompting FY26 capex guidance of USD180–190bn. Microsoft’s 3Q26 (June YE) operating income of USD38.4bn (+20% y/y) was c.4% above consensus. Microsoft's 3Q26 Intelligent Cloud revenue increased 30% y/y, led by 40% Azure growth, with cloud margins at 40% (vs 42% in 2Q26); management expects calendar 2026 capex of around USD190bn.
Amazon’s 1Q26 adjusted operating profit came in at USD23.9bn (+30% y/y, +37% q/q), beating street expectations by c.14%. AWS revenue grew 28% y/y in 1Q26 with a 37.7% operating margin (35% in 4Q25), while the company guided approximately USD200bn of 2026 capex. Meta’s 1Q26 underlying net income of USD18.7bn (+12% y/y, -18% q/q) was c.9% above consensus, driven by higher operating margin of 41% vs. consensus expectations of 35%. Meta raised its FY26F capex to USD125–145bn.
Market to focus on valuation of hyperscalers with higher visibility of monetisation. The industry is shifting to monetisation as capex growth is expected to slow from triple-digit rates to single digits by FY28F. Hyperscalers’ pricing power is increasingly driven by their ability to secure power for data centre capacity, a competitive advantage that may be difficult for Neoclouds to replicate. Consensus projects Amazon, Alphabet and Meta to offer FY26F-28F earnings CAGRs of 17%, 23% & 14% respectively, while they are trading at 12-month forward PE of 25x, 25x & 20x. Microsoft offers 20% group earnings CAGR over FY27F–29F (June YE) while trading at a 20x forward P/E based on the closing price of 10 Jul 2026.

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