Citi says cloud giants are monetizing AI faster than capex is rising

Citi said in a July 31 research note that second-quarter data from Microsoft, Amazon, Google and Oracle is challenging a market narrative that heavy AI infrastructure spending would crush profit margins. The four cloud vendors posted a combined $103.8 billion in quarterly revenue, up 50% year over year, accelerating from 41% in the prior quarter. According to the note, revenue growth is now outpacing the rise in capital expenditures, suggesting that AI investment has moved beyond a pure cash-burn phase. Azure revenue growth accelerated to 43%, AWS to 37%, Google Cloud to 82%, and Oracle Cloud Infrastructure to 92%. Citi also highlighted improving monetization metrics, including AWS AI annualized revenue rising from $15 billion to $25 billion in one quarter and Google reporting token usage growth of 37.5% quarter over quarter to 22 billion per minute. The bank kept Buy ratings on Microsoft, Amazon, Google and Oracle, with price targets of $600, $350, $447 and $330, respectively. Citi argued that operating leverage is helping offset pressure from depreciation and expansion, while growing backlog at AWS, Google Cloud and Microsoft points to sustained AI demand and stronger revenue visibility in coming quarters.