Mega-cap Hyperscalers

Microsoft's Azure cloud business passed $100 billion in annual revenue for fiscal 2026, with Azure and other cloud services growing 43% in the fiscal fourth quarter, unchanged in constant currency. Total quarterly revenue came in at $90.0 billion, up 18%, while fiscal 2026 revenue reached $331.8 billion, also up 18%, and Intelligent Cloud revenue hit $39.3 billion, up 32%. Operating income rose 18% in the quarter to $40.6 billion and 21% for the full year to $155.2 billion, while adjusted EPS was $4.74 for the quarter, up 23%, and $17.28 for the year, up 22%. Microsoft said one-time items added $0.27 per share versus its own guidance, including a $3.2 billion gain on its Anthropic investment, partly offset by severance costs and Xbox impairment charges, and that after adjusting for those items it still beat its expectations on revenue, operating income and EPS. At a forward P/E of 26.59 as of October 6, the stock trades above the sector's 23.81 but below its own five-year average of 30.52, with analysts expecting earnings per share to grow 19.77% in 2027.

Jefferies named Alibaba Group Holding its top pick in the China Internet sector, maintaining a Buy rating and raising its price target on the U.S.-listed shares to $192 from $190, with the Hong Kong-listed target moving to HK$186 from HK$184. The firm cited solid execution across multiple business segments and accelerating growth in artificial intelligence cloud services. Jefferies expects AI Cloud and Compute services revenue to grow over 50% year-over-year to RMB60.5 billion in the September quarter, with segment margin improving quarter-over-quarter to 12.3%, and forecasts cloud revenue to grow over 50% year-over-year in fiscal year 2028. Total revenue is estimated to grow 9.6% year-over-year, while cloud segment profit is expected to offset losses in AI Lab and Applications in the December quarter. On ecommerce, the gap between gross and net China marketplace revenue is narrowing and Quick Commerce losses are lower in September than in the June quarter.

Microsoft has merged its three reporting segments into two, Agents and Infra and Devices and Consumer, starting with fiscal 2027, a change that puts its AI investment case in sharper focus. Restated figures show the Agents and Infra segment, which groups Azure with Microsoft 365 cloud and industry solutions, generated $268.1 billion in revenues and $136.4 billion in operating income in fiscal 2026, an operating margin above 50% even at the peak of the buildout, and management expects first-quarter fiscal 2027 Agents and Infra revenues of $75.15-$75.75 billion. The spending is enormous: fiscal fourth-quarter capital expenditures were $41 billion, roughly two-thirds of it on short-lived assets mainly CPUs and GPUs, first-quarter capex is expected to exceed $50 billion, and a lease reclassification has lifted the calendar 2026 estimate to about $175 billion, while free cash flow fell to $19.6 billion from about $25.6 billion a year earlier and Microsoft Cloud gross margin fell year over year to 65%. The strongest offset is visible future demand, with commercial remaining performance obligation up 84% to $678 billion, about 30% of it expected to be recognized as revenue within 12 months, Azure revenues exceeding $100 billion for the first time in fiscal 2026, and first-quarter Azure growth projected at 44-45% in constant currency against about 17% for Microsoft 365 commercial cloud, supported by more than 30 million paid Copilot seats and new usage-based billing. For fiscal 2027, Microsoft expects double-digit growth in revenues and operating income, full-year operating margins slipping by less than a point and free cash flow staying positive, and because so much of the spending goes to short-lived hardware the company can slow purchases quickly if demand weakens, though rising depreciation and margin pressure remain real risks. Amazon raised its 2026 cash capex outlook to about $220 billion, with AWS revenues up 37% to $42.2 billion in the second quarter and a backlog of $496 billion, while Alphabet lifted its 2026 capex guidance to $195-$205 billion as Google Cloud revenues surged 82% to $24.8 billion and its cloud backlog reached $514 billion, with slightly more than half expected to convert into revenue within 24 months, though Alphabet's free cash flow turned negative in the second quarter.

Amazon is expanding the AI services it sells through Amazon Web Services, with September 2026 launches that added OpenAI's GPT-6 Astra and Moonshot AI's Kimi K3 to Amazon Bedrock and brought the Amazon Quick desktop app and Amazon Connect Talent to general availability. The business already has strong traction: in the second quarter of 2026, AWS' AI business passed a $25 billion annual revenue run rate, growing at triple-digit percentages year over year, and Amazon is investing $1 billion to create AWS Forward Deployed Engineering. That demand showed up in the results, with AWS segment sales rising 37% year over year to $42.2 billion, segment operating income increasing to $16.6 billion from $10.2 billion, and AWS operating margin widening to 39.4% from 32.9% a year earlier. For the third quarter of 2026, Amazon expects net sales of $197-$202 billion, indicating 9-12% year-over-year growth, and operating income of $22.5-$26.5 billion compared with $17.4 billion a year earlier, though trailing 12-month free cash flow fell to an outflow of $7.6 billion as purchases of property and equipment rose $66.1 billion, largely for AI. Amazon faces stiff competition from Microsoft, whose Azure and other cloud services revenues rose 43% in the fiscal fourth quarter ended June 30, 2026, and Alphabet, whose Google Cloud revenues climbed 82% to $24.8 billion in the second quarter of 2026.

Jim Cramer said on the September 30 episode of Mad Money that Microsoft's massive artificial intelligence investment is entering a new phase as the company begins turning its data-center buildout into higher revenue. Cramer noted Copilot now has 30 million users and growing, Azure is accelerating rather than contracting, and Microsoft is beginning to recoup its monster data center investment, which he compared to the payback period Nvidia's Jensen Huang once described for his semiconductors. In its fiscal fourth quarter, Microsoft Cloud revenue increased 27% to $59.3 billion, while Azure and other cloud services revenue grew 43%, and commercial remaining performance obligations rose 84% to $678 billion, including a 25% increase excluding OpenAI. CFO Amy Hood said on September 9 that Microsoft had reduced dock-to-live times for infrastructure by more than 50% over the year, even as capital expenditures reached $41 billion in the June quarter and first-quarter fiscal 2027 spending is expected to exceed $50 billion. Microsoft Cloud's gross margin fell to 65% in the June quarter, and the company generated $19.6 billion of free cash flow while paying $35.8 billion for property and equipment, leaving margins and cash flow worth watching as spending continues to rise.

Alphabet Inc. is positioned to extend a streak of earnings beats into its next quarterly report, according to Zacks Investment Research. Over the last two quarters, the company's average earnings surprise was 154.94%. In the most recent quarter, Alphabet was expected to post earnings of $2.88 per share but reported $9.11 per share, a surprise of 216.32%, following the prior quarter's result of $5.11 per share against a consensus estimate of $2.64 per share, a surprise of 93.56%. Alphabet currently has an Earnings ESP of +1.20% and a Zacks Rank #3 (Hold), a combination that Zacks research shows produces a positive surprise nearly 70% of the time.

Jefferies says a divided government may be the best midterm elections outcome for Big Tech players spending massive amounts of money to build out AI infrastructure. In a note on Monday, the Jefferies research team wrote that a split government and prospects for a national AI policy, rather than fragmented state-level rules, should ensure the rapid pace of AI innovation continues, disproportionately benefiting large, scaled players. The firm's biggest tech winners include Amazon, which benefits regardless of which AI model wins through a model agnostic platform approach; Alphabet, which gets more time to catch up in the AI model race with Gemini 4 Pro and beyond; Microsoft, which has the highest trust from enterprises given its pervasive presence in corporate IT shops; Oracle, emerging as the fourth enterprise cloud option with outsized upside if data center permitting and regulatory hurdles ease; CoreWeave, rapidly becoming recognized as a leading alternative to megacap hyperscalers; Snowflake, a top 2 vendor for AI data plumbing; Datadog, as observability becomes paramount; and Meta, on renewed consumer and small business momentum with Muse and Meta Business Agents. The analysts noted the president's party has lost House seats in 18 of 20 postwar midterms, and with Trump's approval near 39% and independents at 24%, they expect a GOP setback. The 2026 midterm elections are coming on Nov. 3, when voters will choose all 435 members of the House and 35 senators. Truist chief strategist Keith Lerner pointed out that every midterm election year since 1946 has been followed by positive one-year stock returns, with the biggest gain a 34% return after the 1954 elections and an average one-year gain of 14.4%.

Goldman Sachs strategist Ben Snider says the AI stock rally hinges on hyperscalers like Oracle and Amazon delivering another quarter of accelerating cloud computing adoption this earnings season. In a new note, Snider said Goldman's equity analysts expect year over year cloud revenue growth to increase from 48% in Q2 to 55% in Q3, after last quarter's accelerating cloud revenue growth and large revenue backlogs signaled monetization of capex investments. Micron offered an early validating sign last week, beating sales and profit forecasts for the quarter on voracious AI-driven demand, with guidance also strong; the memory chipmaker added about $43 billion in sales in the most recent quarter compared to the year-ago quarter, and operating margins exploded in all business segments. Executives told analysts on the earnings call that high chip prices and tight capacity would be the name of the game through 2028. D.A. Davidson analyst Gil Luria said expectations for tightening supply-demand conditions through both 2027 and 2028 meaningfully extend the industry's runway for strong pricing and earnings growth, addressing a key investor concern that current fundamentals represent a cyclical peak.

Alphabet reportedly won two separate US antitrust cases in late September, easing immediate legal pressure on Google. Google is helping form a cross industry coalition focused on AI data center development ahead of the 2026 US midterm elections, expected to address questions around power use, data sourcing and community impact from large scale AI computing hubs. The antitrust decisions support the view that Alphabet can keep rolling out AI powered features across Search, YouTube and Google Cloud without immediate structural remedies that break its distribution. The AI data center coalition cuts both ways, aligning with the potential to monetise AI infrastructure and long duration power contracts while spotlighting the risk that regulators and communities could still cap how far Alphabet can push energy hungry AI workloads. Analysts have already flagged regulatory pressure and high capital intensity as two of the biggest swing factors for the company.

Anthropic's draft IPO prospectus shows roughly $110 billion owed to Amazon Web Services over about the next decade, part of $518 billion in total cloud, computing and infrastructure obligations the AI company has planned. Amazon's share traces back to a pledge of more than $100 billion over 10 years and, like most of that total, is owed even if Anthropic's usage falls short, giving Amazon revenue visibility that ordinary pay-as-you-go cloud usage does not. Spread evenly, the AWS portion runs above $10 billion a year, while Anthropic reportedly spent $7.33 billion on all of its suppliers combined in 2025. Amazon has also invested $18 billion in Anthropic through convertible notes and nonvoting preferred stock, with up to $15 billion more available, and those holdings are now carried at about $190 billion, up from about $61 billion at the end of 2025. Second-quarter net income more than tripled to $62.6 billion, with $53.4 billion of pre-tax, non-operating income coming mostly from the Anthropic investments. Separately, Synopsys and AWS announced a multi-year deal worth more than $1 billion under which Amazon's cloud unit will license chip design blueprints, and AWS now offers Claude Sonnet 5.5 through Amazon Bedrock.

Microsoft and other large US tech firms have formed a new coalition focused on the environmental, energy grid, and local community impacts of AI data center buildouts across the United States. Member companies are preparing shared sustainability and job creation commitments ahead of key US political events. The group is meant to address local pushback on power use, water consumption, and grid stress that has become a real friction point for large AI facilities, and Microsoft is using it to protect its license to keep building the AI infrastructure its cloud and Copilot products rely on. Microsoft, a US software heavyweight with a US$3.8 trillion market cap, faces a key checkpoint in how it breaks out AI driven data center costs and Azure usage under its new FY27 reporting structure, with the first segment numbers due under Agents and Infra. The coalition lines up with an existing risk around heavy AI and cloud investment that raises financial and execution pressure, and coordinated work on permitting, grid access, and environmental rules may help manage that capital intensity without removing the exposure to very large, long dated infrastructure bets.

Barclays said fresh data shared by Nvidia points to at least $30 billion of potential upside to the chipmaker's revenue from the top five cloud providers in both 2026 and 2027. Analyst Tom O'Malley noted that Nvidia disclosed its share of IT capital spending across the five largest cloud service providers in recent years, through the second quarter of 2026, along with an estimate of 44% for 2027. Using Barclays' internet team's assumption that cloud capital spending reaches about $1.1 trillion by 2027, with 80% going to IT, O'Malley calculated hyperscaler revenue of $237 billion in 2026 and $401 billion in 2027, above Barclays' current forecasts of $206 billion and $370 billion. In an upside scenario where historical ratios hold, he sees revenue reaching $246 billion and $417 billion in those years. O'Malley also noted that Nvidia's hyperscaler revenue includes SpaceX while the top five cloud provider figure does not, implying an even larger total, and said sentiment on the name can continue to improve amid solid numbers upside, increased buybacks and the Hugging Face acquisition.

Sen. Elizabeth Warren and fellow lawmakers sent letters this week to the CEOs of Amazon, Alphabet, Meta and Microsoft demanding details on their tax breaks and their lobbying for incentives in the One Big Beautiful Bill Act. Warren pointed to Amazon, which paid $7.8 billion less in tax last year, while Meta received nearly $7 billion in tax relief in 2025, paying $2.8 billion in federal tax compared to $9.6 billion in 2024. According to the Institute on Taxation and Economic Policy, Microsoft and Alphabet each qualified for tax cuts of nearly $19 billion last year. The breaks stem largely from the One Big Beautiful Bill Act's 100% bonus depreciation, which lets companies write off qualifying capital investments such as AI data centers in their first year; Microsoft claimed nearly $12 billion in depreciation tax breaks, Amazon $6.5 billion, Meta $4.9 billion and Alphabet over $3.3 billion. Corporate tax revenues are down 23% this year, amounting to $96 billion in lost federal revenue, according to Politico, as federal debt has topped $40 trillion. Warren and her colleagues want data centers disqualified from bonus depreciation tax breaks, while White House spokesperson Kush Desai said the law's pro-growth provisions were driving historic job, investment and wage growth.

NTT DOCOMO BUSINESS, Inc., formerly NTT Communications Corporation, has migrated its shared internal Oracle-based database platform to Oracle Autonomous AI Database on Oracle Cloud Infrastructure, moving tens of terabytes of data off its on-premises environment and cutting database license costs by 43 percent. The shared platform hosts critical internal systems including network management, security, and service operations, and currently supports 12 critical internal systems connected to approximately 400 servers. Akihiro Ito, senior vice president of the Integrated Service Operations Division at NTT DOCOMO BUSINESS, said the flexible consumption model delivered the 43 percent license-cost reduction versus on-premises, while automation of patching, backups, and routine maintenance has significantly reduced day-to-day administrative work. To strengthen business continuity, the company implemented a disaster recovery architecture across two Oracle Cloud regions in Japan, which it says supports stable operations and faster recovery from disruptions. The company added that automated backups, patching, and maintenance have cut the time and effort needed to address security vulnerabilities and enabled faster responses to AI-enabled cyberattacks and emerging vulnerabilities.

Anthropic's confidential initial public offering prospectus has revealed the AI lab's heavy dependence on a small group of big tech partners and clients, according to Reuters. The hyperscalers Amazon and Google benefited as Anthropic routed 47% of its sales to customers in 2025 through those two cloud partners, with sales through the pair accounting for $2.16B. Anthropic paid about $351M, or about 16 cents per dollar, in distribution fees back to those cloud partners in 2025. Sales through the two partners have surged every year, rising from 11% of revenue in 2023 to 32% in 2024 to nearly 50% in 2025, while both Amazon and Google have heavily invested in Anthropic in return. In addition, two unnamed customers accounted for 12% of Anthropic's total revenue in 2025.

Jefferies analyst Brent Thill reiterated a Buy rating and $575 price target on Microsoft, calling the company's revamped Copilot incrementally positive and supportive of the firm's Microsoft 365 thesis. The biggest change, according to Jefferies, is that Microsoft is pushing Copilot beyond simple AI assistance toward software that can perform longer, more complex work, with new features such as Cowork, Code and Autopilot potentially increasing both the number of tasks Copilot handles and how frequently customers pay for AI usage. Thill said Cowork bridges AI assistance to delegated, end-to-end work, while Autopilot extends this into proactive, persistent and recurring execution, a shift Jefferies believes could make AI consumption more tangible across Microsoft 365. Thill also compared the new Copilot app with Meta Platforms' Muse, arguing Microsoft may hold an important enterprise advantage because its AI tools are grounded in proprietary corporate data and workflows, and because it controls a much broader enterprise technology stack spanning productivity, collaboration, cloud infrastructure, data, identity, security, governance and compliance. Jefferies cautioned that better AI capabilities do not automatically guarantee stronger consumption, as enterprises closely monitor AI budgets and increasingly demand clear returns before expanding spending, meaning adoption could remain gradual; the key metric for investors will be whether these new agentic capabilities move from demonstrations into recurring production workflows.

NetApp and Oracle announced a new fully managed storage service that brings enterprise-grade NetApp storage natively to Oracle Cloud Infrastructure. The service, called Oracle Cloud Infrastructure NetApp Storage Service, will bring NetApp ONTAP data management capabilities natively to OCI to help organizations simplify migration and management of critical AI and enterprise workloads in the cloud. It is designed to help enterprises migrate, run, protect, and modernize databases, enterprise applications, virtualized environments, EDA/HPC, regulated applications, and AI data pipelines while preserving familiar storage operations, and customers can manage it through the OCI Console and SDKs, ONTAP APIs, and familiar operational workflows. Pravjit Tiwana, Senior Vice President and General Manager of Cloud Storage and Services at NetApp, said customers want the flexibility to move AI and enterprise workloads to the cloud without giving up operational simplicity, data management, and reliability, while Konstantinos Papamiltiadis, Senior Vice President of Partnerships at Oracle Cloud Infrastructure, said enterprises shouldn't have to rebuild their data infrastructure to move to the cloud. Alvaro Celis, Senior Vice President, Chief Commercial, Partner and Ecosystem Officer at NetApp, said the partnership combines OCI's scale and performance with NetApp's enterprise data capabilities to help customers run mission-critical workloads, especially in regulated industries. OCI NetApp Storage Service is planned for general availability within the next 12 months.

Microsoft launched a reimagined Copilot in September 2026 built around Home, Code and Autopilot, alongside a hybrid pricing model that keeps per-user pricing for everyday AI while moving advanced capabilities to consumption-based Copilot Credits. The company reported that Microsoft 365 Copilot paid seats topped 30 million in fourth-quarter fiscal 2026, with net seat additions more than doubling sequentially, while Agent 365 registered nearly 40 million agents within two months of launch and Foundry revenues more than doubled year over year. Commercial remaining performance obligation surged 84% year over year to $678 billion. For first-quarter fiscal 2027, Microsoft expects revenues of $89.85-$90.95 billion, implying 16-17% growth, with Microsoft 365 Commercial cloud revenues projected to grow about 16% in constant currency, Azure expected to grow roughly 45%, and Intelligent Cloud revenues forecast at $40.95-$41.25 billion, up 33-34%. Cost of revenues is expected to rise 23-24% in the fiscal first quarter, keeping operating margins roughly flat year over year, while capital expenditures are projected to exceed $50 billion, and for fiscal 2027 Microsoft expects operating margins to decline by less than one point as capex keeps rising. Microsoft faces competition from Salesforce, whose Agentforce annual recurring revenue topped $1.5 billion in second-quarter fiscal 2027, up more than 240% year over year, and from Alphabet, whose Gemini Enterprise is now used by nearly 90% of Fortune 100 companies and whose Google Cloud backlog reached $514 billion in the second quarter of 2026.

ClickHouse announced a significant expansion of its strategic collaboration with Microsoft at The European Microsoft Fabric + SQL Community Conference in Barcelona, Spain, encompassing four major milestones. The company launched a native ClickHouse workload for Microsoft Fabric, now in public preview through the Fabric workload hub, which brings the ClickHouse query engine directly into the Fabric experience and accelerates OneLake queries to sub-second response times. ClickHouse support for reading Apache Iceberg tables from OneLake using OneLake Table APIs is now generally available, while support for writing Iceberg tables to OneLake with credential vending is in public preview. ClickHouse Bring Your Own Cloud is now available to Azure customers through the Microsoft Marketplace, letting organizations run ClickHouse Cloud inside their own Azure tenant while ClickHouse manages provisioning, upgrades, monitoring, and scaling. Yury Izrailevsky, President of Product and Engineering at ClickHouse, said the engineering teams worked closely together so these capabilities are seamlessly integrated into the Microsoft data platform rather than layered on top of it, and Dipti Borkar, Vice President of Microsoft IQ and OneLake at Microsoft, said joint customers have more best-in-class analytical engines to choose from without moving or copying data between platforms.

Anthropic reported a net loss of $42 billion in 2025 and plans to spend $518 billion on cloud, computing and infrastructure obligations in coming years, according to its IPO prospectus seen by Reuters. Revenue grew 12-fold in 2025 to nearly $4.6 billion, even as the company lost more than $8 billion on an operating basis, excluding writedowns of various liabilities mostly tied to previous fundraising. The AI lab spent $7.33 billion on compute and infrastructure last year, a threefold surge from 2024, accounting for more than half of its $12.65 billion in total operating expenses. Anthropic had cash, cash equivalents and short-term investments totaling $20.28 billion as of December 31. The debut would follow SpaceX's IPO that valued Elon Musk's company at $1.77 trillion, while Anthropic's biggest challenger OpenAI confidentially filed for an IPO in June and is expected to list by early 2027.

Alibaba Group Holding is expected to secure Chinese approval to purchase Nvidia RTX PRO 5500 chips under current export rules. Regulators in Beijing are reviewing the RTX PRO 5500 orders as a category of AI hardware seen as compliant with US curbs. The prospective approval would expand Alibaba's pool of Nvidia processors for use in its cloud services and in-house AI projects, supporting the company's RMB 380 billion AI and cloud buildout over three years alongside its Zhenwu V900 chips. The likely green light comes as Alibaba competes with Tencent and Huawei to serve enterprise AI workloads at scale, while analysts warn that relying on both in-house accelerators and imported Nvidia gear could keep capital intensity high and leave profitability under strain if usage lags capacity.

Crusoe announced it is the developer of Google's data center campus under construction in Armstrong County outside of Amarillo, Texas. The campus is engineered to provide capacity to power advanced AI and has a direct connection to Serena's adjacent Goodnight 1 wind farm, which at 265.5 MW is operational, and the Goodnight 2 wind farm, also 265.5 MW, which is under construction and was catalyzed by Crusoe's development at the site. When wind generation exceeds campus demand, surplus power is supplied back to the grid, benefiting local ratepayers and reducing curtailment of West Texas wind energy. Construction broke ground in June 2025 and is underway with more than 5,500 skilled laborers on-site daily, and the project will use a closed-loop, non-evaporative liquid cooling system designed to limit its water footprint primarily to domestic uses such as kitchens. The campus is part of Crusoe's growing West Texas portfolio, which includes two campuses under development in Abilene.