Citi said in a July 31 research note that recent earnings data is starting to undermine a market concern that elevated capital spending on AI infrastructure would erode profit margins. Microsoft, Amazon, Google and Oracle posted combined second-quarter cloud revenue of $103.8 billion, up 50% from a year earlier and faster than the 41% growth recorded in the prior quarter. Citi’s core view was that AI infrastructure is being monetized more efficiently, with revenue growth now running ahead of capex growth.
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Cloud revenue growth accelerated across all four vendors
In the second quarter, Microsoft Azure grew 43%, up from 39% in the previous quarter. Amazon Web Services, or AWS, grew 37%, compared with 28% in the prior quarter. Google Cloud grew 82%, up from 63%, while Oracle Cloud Infrastructure, or OCI, accelerated to 92% from 81%.
The four companies added $35 billion in incremental revenue during the quarter. AWS contributed about $11.4 billion of that increase, Google Cloud about $11.1 billion, Azure about $9.3 billion, and OCI about $3.2 billion.
AWS remained the market leader with a 41% share. Google Cloud’s share rose from 22.6% to 24%, the fastest gain among the group. Azure held steady at 30%, and OCI increased to 5.6%.
Citi said the broad-based acceleration in cloud revenue suggests AI investment is no longer in a stage defined only by spending, as the revenue payoff is coming through faster than many in the market had expected.
AWS, Google Cloud, Azure and OCI metrics
AWS’s AI business reached an annualized revenue run rate of $25 billion, up from $15 billion in the first quarter. Its chip business also reached a $25 billion annualized revenue run rate. Citi said Bedrock customer spending exceeded the combined total of all previous quarters, and AWS signed a $100 billion AI lab compute contract.
Google Cloud’s growth rate jumped from 63% to 82%. Citi said TPU sales contributed, but core Google Cloud Platform, or GCP, growth also improved. Google disclosed that nearly 90% of F100 enterprises use Gemini Enterprise. Token usage rose 37.5% quarter over quarter to 22 billion per minute. Actual customer spending came in more than 50% above initial commitments, compared with 45% in the previous quarter.
Azure growth accelerated from 39% to 43%. Citi said the main driver was higher compute efficiency rather than capacity expansion. Microsoft added 1 gigawatt of compute capacity during the quarter and improved output efficiency through software and infrastructure optimization. Azure commercial bookings grew 11%, or 18% excluding OpenAI-related contracts.
OCI accelerated from 81% to 92%. Its market share was only 5.6%, but it posted the fastest growth among the four. Citi said Oracle’s distributed cloud strategy is absorbing incremental AI workloads.
Capex climbed, but margins did not deteriorate
Capital spending rose in parallel with revenue. AWS reported about $40 billion in second-quarter capex, up 83% year over year and equal to 74% of Amazon’s total capex. Azure was at about $38.3 billion, while Google Cloud was at about $22 billion, up 100% year over year. Microsoft, Amazon and Google together spent more than $100 billion in a single quarter, and the combined capex of the four cloud vendors increased by about $20 billion from the previous quarter.
Citi said operating margins did not weaken. AWS posted a margin of 39.4%, or 38.1% excluding one-time derivative gains, above Citi’s 33.5% estimate and above 37.7% in the prior quarter. Google Cloud’s margin was 35.6%, up 15 percentage points from a year earlier and 270 basis points sequentially. Microsoft cloud gross margin was 65%, 1 percentage point above guidance.
In Citi’s view, operating leverage is offsetting margin pressure from depreciation and expansion. With revenue growth at 50%, ahead of capex growth, the bank said scale effects are beginning to show and AI infrastructure monetization is improving faster than the market had expected.
Backlog growth points to longer-term demand
AWS backlog rose 154% to $496 billion, increasing by $132 billion in a single quarter. Google Cloud backlog was close to $514 billion, up $408 billion from a year earlier. Microsoft commercial remaining performance obligations grew 25%.
Citi said the rapid increase in backlog supports the case for sustained AI demand. The bank described these as long-term commitments rather than one-off contracts, which in its view improves revenue visibility for the coming quarters.
Citi kept Buy ratings on all four companies
Citi maintained Buy ratings on Microsoft, Amazon, Google and Oracle, with price targets of $600, $350, $447 and $330, respectively.
- For Microsoft, Citi’s $600 target implies about 26 times fiscal 2028 earnings per share. The bank said re-accelerating Azure growth and Copilot monetization are the main drivers, and it described Microsoft as the most complete AI cloud platform among the group.
- For Amazon, Citi’s $350 target implies about 31.5 times expected 2027 earnings per share. Citi said AWS AI annualized revenue of $25 billion supports valuation, while improving profitability in retail is also adding to the story.
- For Google, the $447 target implies about 28 times 2027 earnings per share. Citi said renewed acceleration in cloud growth underpins the valuation premium, while AI innovation in search is helping user stickiness.
- For Oracle, the $330 target implies about 20 times fiscal 2030 earnings per share. Citi said OCI backlog improves revenue visibility and argued Oracle is becoming a new platform for AI workloads.
Report framing and disclaimer
The article was presented as a summary and interpretation by Chaoxiang Research of a third-party broker report from Citi Research dated July 31, 2026, combined with publicly available market information. It said the ratings, price targets, earnings forecasts and related judgments cited in the piece are the views of Citi analysts and represent only the position of that institution, not the view of Chaoxiang Research, and do not constitute investment advice.
The piece also said markets carry risk, investment decisions should be made independently, and the article should not be used as a basis for buying or selling any security.
