The industry is moving from a first phase of capital-intensive data center builds to a second phase focused on actively monetizing cloud backlogs. Cloud growth keeps accelerating, largely driven by the rise of enterprise AI workloads.
In my view, there's still a massive digital runway left to capture. Even as enterprise AI adoption grows, trillions of everyday operational workflows haven't yet deployed autonomous AI agents.
Globally, data creation has grown more than 3x over the last five years to over 230 zettabytes. Meanwhile, AI tokens have exploded from near zero to tens of quadrillions per month, with no signs of slowing down.
Companies are also optimizing margins through aggressive cost rationalization. This is being driven by internalizing custom hardware and a strategic pivot away from expensive third-party LLMs.
The market has already discounted growth concerns for $Microsoft(MSFT)$ , which currently trades below the market multiple. Its Intelligent Cloud segment will likely need to carry the other two segments, where growth may come more from price increases than volume. If Copilot adoption increases, that's simply icing on the cake.
$Alphabet(GOOGL)$ and $Amazon.com(AMZN)$ arguably deserve a premium because their highly diversified core ecosystems support growth outside of pure cloud compute. Their high-margin advertising markets continue to grow, which should provide more earnings stability.
Looking further out, maybe in five-plus years, we could see a price war develop as hyperscalers look to intentionally squeeze out neocloud capacity—that would be the third phase.
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