Morgan Stanley: Cloud giants plan to step up spending in 2027, with capacity and cash flow becoming key constraints

How are cloud giants' investment plans changing?

Microsoft expects spending to accelerate from January 2027 through June; Google expects spending to rise significantly in 2027, and Amazon also expects a marked increase. Meta plans to continue investing aggressively.
For calendar-year 2026 capital spending guidance, Microsoft is at about 170 billion dollars, Google at 195 billion to 205 billion dollars, Meta at 135 billion to 145 billion dollars, and Amazon at 220 billion dollars. Google and Amazon maintained their guidance, while Meta raised the lower end of its spending range by 5 billion dollars.

Morgan Stanley believes infrastructure capacity is the current constraint. Microsoft's capital spending in the third quarter of 2026 was 45.2 billion dollars and is expected to exceed 50 billion dollars in the fourth quarter, but some capacity deliveries have been delayed until the first half of 2027.
Google invested 51.4 billion dollars in the third quarter and turned to third-party computing capacity later in the quarter to address supply constraints, with usage expected to rise further in the fourth quarter.

Morgan Stanley believes continued server investment and capacity expansion support the demand outlook for Aspeed and Montage; delays in capacity delivery could shift related revenue between quarters.
The spending mix shows that server hardware remains an important destination: about 75% of Microsoft's third-quarter capital spending went toward short-lived assets such as CPUs and GPUs, as well as higher memory and storage costs, up from the roughly two-thirds previously cited; about 65% of Google's investment went toward servers and networking.

Microsoft's free cash flow for the quarter was 18.6 billion dollars, and it expects the figure to remain positive in fiscal 2027; Google, Meta and Amazon posted quarterly free cash flow of negative 9.1 billion, negative 2.1 billion and negative 33.5 billion dollars, respectively.
Google said depreciation, data center operating costs and third-party computing expenses will pressure near-term cloud margins, while TPU inventory also ties up cash. Meanwhile, inference already accounts for well over half of Amazon AWS's AI revenue.