Are Hyperscalers Spending Too Much on Datacenters?
Are the cloud hyperscalers spending too much on AI datacenters?
That’s the question prompted by recent earnings reports, which showed capex at unprecedented levels for most of the world’s leading public cloud providers. The answer? While it looks like things are holding steady for now, spending could pressure future profitability. Let’s take a closer look.
Between the first and second quarters of 2025, three of the four leading hyperscalers substantially increased their capital spending (capex): Alphabet by 30%, Amazon by 29%, and Meta by 28%. Only Microsoft held steady, increasing its quarterly capex by just 2% between Q1 and Q2 of this year.
Source: Company reports
Notably, though, Microsoft shows the largest increase in capex as a percentage of revenue over the longer period since 2022, when OpenAI's ChatGPT hit the market.
Source: Company reports
Oracle, whose financial calendar ends on May 31 of each calendar year, showed dramatic increase in capex over the past four fiscal years, despite a drop during fiscal 2024. The company’s capex-to-revenue ratio also has increased sharply:
Source: Company reports
What Hyperscalers Are Buying
Throughout the latest spate of earnings calls, the hyperscalers uniformly cited AI infrastructure spending as the reason for increased capex. This includes servers, networking equipment, and of course datacenters. All of the hyperscalers have ambitious datacenter plans. Below is a very partial list:
Source: Company and multiple media reports
The big public cloud companies cite demand for training and inferencing, along with cloud services in general, as pushing necessary growth. And it’s not yet clear when or how this growth will even out. Most of the datacenter projects underway are multiyear undertakings.
Long-term Effects of Growing Capex
How the burgeoning capex of the major hyperscalers will play out on the broader scale of earnings for each company is a complex issue. Still, there are hints that it could weigh on some measures of performance. If we do a very simple calculation by subtracting capex from operating cash flow, we can see that the past two quarters have shown substantial reductions in free cash flow for Alphabet, Amazon, and Meta:
Source: Company reports
Clearly, there are many lenses through which to view hyperscaler spending. But if trends continue, there will likely be some changes to earnings reports that reflect the heavier capex. Just how how those changes play out over time remains to be seen. It's even possible, as Futuriom has noted previously, that spending could drop dramatically, based on historical norms.
Futuriom Take: Hyperscalers are spending aggressively on datacenters, which could weigh on earnings for the near term. Longer term, spending may even out as datacenter buildouts wind down or historical norms set in.
