The four major cloud providers collectively generated $103.8 billion in revenue in the second quarter, a 50% year-over-year increase, accelerating from 41% in the previous quarter. Microsoft Azure grew 43% (up from 39% last quarter), Amazon AWS grew 37% (up from 28%), Google Cloud grew 82% (up from 63%), and Oracle OCI grew 92% (up from 81%). In a research report dated July 31, Citi noted that the monetization efficiency of AI infrastructure is improving, with revenue growth outpacing capital expenditure growth. Citi’s core assessment is that cloud providers’ AI investments have moved beyond the pure spending phase, and capital expenditures are now being absorbed by revenue.
Capital expenditures are also rising in tandem. The four major cloud providers increased their quarterly capex by approximately $20 billion each, with Microsoft, Amazon, and Google collectively exceeding $100 billion. Citigroup maintains a Buy rating on Microsoft, Amazon, Google, and Oracle, with target prices of $600, $350, $447, and $330, respectively.
Cloud revenue is accelerating across the board, led by Google Cloud and AWS.
In the second quarter, the combined revenue of the four major cloud providers reached $103.8 billion, a 50% year-over-year increase, with an incremental revenue of $35 billion. AWS contributed approximately $11.4 billion in incremental revenue, Google Cloud approximately $11.1 billion, Microsoft Azure approximately $9.3 billion, and OCI approximately $3.2 billion.
AWS holds a 41% market share, remaining the market leader. Google Cloud increased its share from 22.6% to 24%, achieving the fastest growth. Azure remained stable at 30%, while OCI rose to 5.6%. AWS’s AI business annualized revenue grew from $15 billion in Q1 to $25 billion, with its chip business also reaching $25 billion in annualized revenue. Customer spending on Bedrock exceeded the total of all previous quarters combined. AWS also secured a $100 billion AI lab computing contract.
Google Cloud's growth rate increased from 63% to 82%, driven by TPU sales, but core GCP growth also improved. Google disclosed that nearly 90% of Fortune 100 companies use Gemini Enterprise, with token usage rising 37.5% quarter-over-quarter to 22 billion per minute. Customer actual spending exceeded initial commitments by more than 50%, up from 45% last quarter.
Azure's growth accelerated from 39% to 43%, primarily driven by improved compute efficiency rather than capacity expansion. Microsoft added 1 GW of compute capacity during the quarter, enhancing unit output efficiency through software and infrastructure optimizations. Azure commercial bookings grew by 11%, rising to 18% when excluding OpenAI-related contracts.
OCI accelerated from 81% to 92%, with a market share of only 5.6%, but it leads in growth rate. Oracle’s distributed cloud strategy is successfully absorbing increasing AI workloads.
Capital expenditures are rising in tandem, but operating leverage offsets the pressure.
AWS's Q2 capex was approximately $40 billion, an 83% year-over-year increase, accounting for 74% of Amazon's total capex. Azure was approximately $38.3 billion, and Google Cloud was approximately $22 billion, up 100% year-over-year. The combined quarterly capex of the three exceeds $100 billion, and the total for all four increased by approximately $20 billion quarter-over-quarter.
Operating profit margins did not deteriorate. AWS's profit margin was 39.4%, or 38.1% excluding one-time derivative gains, exceeding Citigroup’s expectation of 33.5% and up from 37.7% in the prior quarter. Google Cloud’s profit margin was 35.6%, up 15 percentage points year-over-year and improving 270 basis points quarter-over-quarter. Microsoft Cloud’s gross margin was 65%, one percentage point above guidance. Operating leverage is offsetting gross margin pressures from depreciation and expansion.
Citibank believes this trend is sustainable. Revenue growth (50%) has outpaced capex growth, incremental revenue is expanding, and economies of scale are being realized. The monetization efficiency of AI infrastructure is outpacing market expectations. AWS’s annualized AI revenue increased from $15 billion to $25 billion in just three months, and Google’s token usage grew quarter-over-quarter by 37.5%—these are not one-off events, but signals of an accelerating trend.
Order backlog verification for long-term AI demand
AWS backlog increased 154% to $496 billion, with a quarterly addition of $132 billion. Google Cloud’s backlog approached $514 billion, up $408 billion year-over-year. Microsoft’s commercial remaining performance obligations grew 25%. Citi believes the rapid order growth confirms the sustainability of AI demand—these are not one-time contracts but long-term commitments, indicating improved revenue visibility for upcoming quarters.
Citibank’s target prices and valuation rationale for the four companies are as follows: Microsoft at $600, implying approximately 26 times its FY2028 EPS, driven primarily by renewed acceleration in Azure and monetization of Copilot; Citibank views Microsoft as the cloud provider with the most comprehensive AI positioning. Amazon at $350, implying approximately 31.5 times its expected FY2027 EPS, supported by AWS AI annual revenue of $25 billion, with profit improvements in retail contributing additional upside. Google at $447, implying approximately 28 times its FY2027 EPS, with renewed cloud growth serving as the premium basis, while AI innovations in search are enhancing user engagement. Oracle at $330, implying approximately 20 times its FY2030 EPS, with OCI order backlog providing revenue visibility; Citibank believes Oracle is emerging as a new platform for AI workloads.
Cloud providers' capex is rising, revenue is rising, and orders are still growing. Citigroup believes the monetization logic of AI is being validated quarter after quarter, with revenue growth outpacing capital expenditure growth, proving that capex is not wasted. AWS's annualized AI revenue nearly doubled in three months, Google's token usage continues to accelerate, and cloud providers' operating profit margins are increasing rather than declining. Market concerns that "excessive capex would crush profits" are being disproven by the data.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Citigroup Research, July 31, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent only the position of their respective institution; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.
Written by: Rita