Bank of America: Raising cloud provider capex forecasts: computing shortages support GPU rents, but cash flow is under pressure

How much have cloud providers’ investment forecasts risen?

Capital spending by the major cloud and neocloud providers tracked by BofA is expected to reach 1.03 trillion and 1.58 trillion dollars in 2026 and 2027, respectively, up 99% and 54% year over year; before earnings season, the respective growth forecasts were 98% and 37%. The figures include leases.
The upward revision to growth is concentrated mainly in 2027. According to a compilation of BofA and market consensus estimates, neocloud providers’ capital spending is expected to reach 334.4 billion dollars in 2027, up approximately 120% year over year; SpaceX’s xAI is expected to invest 227.5 billion dollars of that amount.

Google’s model APIs process nearly 32 billion tokens per minute, more than four times the year-earlier level; Google Cloud’s backlog rose from 514 billion dollars in the previous quarter to 561 billion dollars, while cloud revenue grew 103% year over year. Growth in both usage and contracted demand underpins BofA’s view that computing capacity remains scarce.
Microsoft Foundry’s sales more than tripled year over year, which BofA attributes to improved GPU efficiency and higher revenue per token. Demand is evident in usage and is also beginning to translate into higher service revenue.

Spot rental rates for B200 GPUs are approximately 6.47 dollars per hour, close to an all-time high; BofA says B200 and H100 rents have risen 47% and 31%, respectively, during the year. High rents and near-full utilization together improve returns on renting out computing capacity.
According to SpaceX, under new financing agreements, cloud and neocloud providers can recover their investment in less than 12 months. Oracle, meanwhile, has re-leased computing capacity whose contracts expired at a premium of approximately 20%.
Meanwhile, BofA estimates the market inference price at approximately 0.92 dollars per 1 million tokens, below the median of 1.45 dollars over the past 12 months. Lower costs per unit of usage help expand AI usage.

AI infrastructure investment is concentrated upfront, putting pressure on near-term free cash flow. Google’s free cash flow for the quarter was negative 9.1 billion dollars, below the market expectation of negative 2.7 billion dollars; BofA believes this result is unrelated to AI demand, and Google continues to guide for a significant year-over-year increase in capital spending in 2027.
Financing channels continue to support expansion: SpaceX signed binding commitments worth approximately 40 billion dollars with entities managed by Apollo, which will purchase Vera Rubin GPUs and lease them to SpaceX; lease structures providing processors and networking equipment to cloud providers are also sometimes supported by residual-value commitments from chip designers.
Oracle management aims to achieve positive free cash flow in the second half of fiscal 2028, exceed 30 billion dollars in fiscal 2029, and fund growth from its own resources; the company expects capital spending to peak between fiscal 2027 and fiscal 2028.