Cloud Spending Forecast for 2027 Jumps to $1.2 Trillion Amid AI Boom, Morgan Stanley Says

Consensus estimates for cloud capital expenditure in 2027 have surged to approximately $1.2 trillion, a figure $170 billion higher than forecasts made before recent quarterly earnings, according to analysts at Morgan Stanley. The revised forecast reflects an aggressive spending cycle fueled by intense demand for artificial intelligence infrastructure, which continues to outpace available capacity.

Hyperscalers Boost Spending Plans

The upward revision follows updated guidance from three of the four major U.S. hyperscalers, who are ramping up investments to meet demand. Morgan Stanley's analysis highlighted that these tech giants remain supply-constrained as both external cloud customers and internal AI workloads compete for computing resources.

Updated 2026 capital expenditure (capex) guidance includes:

• Alphabet (GOOGL): Increased its forecast to $195-$205 billion, up from a previous range of $180-$190 billion.
• Amazon (AMZN): Raised its cash capex outlook to approximately $220 billion from $200 billion, partly due to memory cost inflation.
• Meta (META): Narrowed its spending range to $130-$145 billion, a slight increase from the prior $125-$145 billion range.
• Microsoft (MSFT): Maintained its underlying 2026 spending plan at approximately $190 billion.

AI Demand Drives Revenue Growth

Ad

Despite capacity limitations, cloud revenue growth accelerated significantly, driven by improved hardware utilization, the scaling of AI services, and broader adoption of AI-powered infrastructure. Amazon Web Services (AWS) reported 37% year-over-year growth, its fastest rate in 18 quarters.

Similarly, Google Cloud Platform saw revenue jump by 82% year-over-year, while Microsoft's Azure grew by 43%. According to the report, this robust performance underscores how the AI boom is translating directly into higher consumption of core cloud services.

Morgan Stanley Sees Further Upside

Morgan Stanley's own estimate for 2027 cloud capex is even more bullish, at $1.4 trillion, which is 17% above the current consensus. The firm believes the consensus forecast, implying 29% year-over-year growth, may be too conservative because it suggests that non-AI cloud capex would grow by just 7%.

The analysts noted that hyperscalers are expressing greater confidence in their return on invested capital. This confidence is supported by rising order backlogs, multi-year customer commitments, and greater pricing power, ensuring that the massive investments are financially sound. Amazon, for example, emphasized that most of its AI capacity is already contracted on multi-year terms, with server investments expected to break even in under three years.