CLOUD · T07
Will cloud revenue growth at Microsoft, Google, and AWS outpace their combined depreciation growth near Q3 2027?
Record spending on AI data centers is pushing up depreciation costs. The question is whether cloud revenue is growing even faster.
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Cloud revenue growth pays for the capex
New AI capacity gets filled almost as soon as it comes online, so cloud revenue keeps climbing faster than the cost of depreciating the servers and buildings behind it. Microsoft is holding capex guidance while Amazon grows AWS 36.7% year over year and still expands capex, showing the two largest cloud providers maintaining expansion precisely when bears argued growth and capex could not coexist. Alphabet's multi-year AI spending shows rapid Google Cloud growth alongside operating expense reduction, and despite depreciation rising from 3.7% to 5.3% of revenue, operating margins expanded 4 percentage points, evidence the buildout is paying for itself financially.
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Depreciation catches up with cloud revenue growth
As the huge capital spending of recent years lands on the books, depreciation charges catch up with or overtake cloud revenue growth near Q3 2027. AI revenue in part depends on subsidized buyers, so headline cloud growth may not reflect demand strong enough to outpace the depreciation generated by the current buildout, leaving margins at Google Cloud and AWS compressed rather than expanding.
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