Microsoft's Azure Backlog Hits $678 Billion as Capex Debate Intensifies

Alibaba Group Holding outlined a global AI cloud expansion for 2026 that includes new AI-focused cloud regions across Europe and early stage data center projects in Spain. The company also announced a partnership with Sands China to deploy embodied AI robots and spatial intelligence systems at a flagship resort. The buildout is part of a broader push to move from merchant-focused tools toward becoming a compute provider, with plans for 20 gigawatts of capacity plus custom chips. The article notes that profit margins have already moved from 14.8% to 7%, and that the heavy AI and cloud spending weighs on EBITDA as Alibaba trades short term earnings for a larger infrastructure role.

Evercore ISI says a sharp selloff across internet equities this year has created an attractive entry point, with major hyperscalers poised for potential free cash flow inflection points over the next 3 to 12 months. The 19 large-cap internet stocks covered by Evercore ISI have dropped by an average of 18% in 2026, severely underperforming broader market benchmarks, with the S&P 500 up 14% and the Nasdaq Composite rising 19%. Evercore ISI Senior Managing Director Mark Mahaney attributed the sector's underperformance to six primary bear market factors: stretched valuation exits after a three-year bull run, AI disruption risks that have hit names like Booking Holdings, Expedia Group, Shopify and Uber Technologies, capex intensity at major hyperscalers, inflationary headwinds from the ongoing war in Iran, investor capital reallocation ahead of an incoming generation of mega-cap internet public offerings, and the emergence of autonomous AI agents as primary consumer interfaces. Despite pervasive market skepticism that massive AI capex will cause negative free cash flow at Amazon.com, Alphabet and Meta Platforms over the next two to three years, Evercore ISI argued that Wall Street consensus is overly pessimistic, noting that upward revisions to revenue and operating income could easily offset spending increases. Mahaney wrote that positive free cash flow inflection points over the next 3 to 12 months could serve as a major catalyst to right market wrongs.

Amazon.com is reportedly considering moving roughly $8 billion of Nvidia Grace Blackwell chips into a special-purpose vehicle financed by outside investors and then leasing the hardware back, a structure that would make part of its AI buildout more asset-light as capital spending is expected to reach $220 billion this year. AWS revenue rose 37% to $42.2 billion in the second quarter, its fastest growth in more than four years, and contract backlog reached $496 billion, while CEO Andy Jassy said the company still lacks enough capacity to meet demand. Trailing-12-month free cash flow swung to negative $7.6 billion from positive $18.2 billion a year earlier as infrastructure spending accelerated. Amazon trades at 23.64 times forward earnings, and Tigress Financial recently raised its target to $385 from $315, arguing earnings from the investment cycle are approaching an inflection point where they grow faster than operating capital. The proposal also raises the question of residual chip value, since Grace Blackwell will eventually be superseded by Vera Rubin while Amazon assumes semiconductor generations remain useful for at least five years.