Breaking Analysis with Dave Vellante

Breaking Analysis with Dave Vellante

nvestors keep score with growth rates, but this quarter you had to read the footnotes and the fine print. Microsoft put up eye-popping Azure growth again, but a big slice of that acceleration is AI inference — notably ChatGPT — now embedded in the revised Azure definition - great for headlines but not conducive to apples-to-apples comparisons. Meanwhile, AWS delivered the largest dollars and a very clear message that demand exceeds supply. Meaning growth is capped by power and components, not pipeline. That creates a weird optics penalty — AWS showing growth in the high teens growth on a $120B-plus run rate and it’s a “concern.” But it also telegraphs future upside as capacity lands and depreciation cycles through.  

The stealth story is Google. Google Cloud posted a strong print with solid top-line growth and steadily improving operating margin — and GCP (the IaaS/PaaS core) is growing materially faster than Cloud overall - our estimate is nearly 40%. Backlog is building at more than $250M and $1B+ deals are real. As the mix shifts toward AI-heavy, infrastructure-centric workloads, it becomes a tailwind for Google, continues to lag the scale of AWS and Azure. Let’s call it a disciplined scale strategy with less noise.

The other common thread is a capex arms race that faces real constraints. All three players said the quiet part out loud — power, sites, servers, power and lead times will dictate who wins AI inference and who monetizes it. Microsoft is capacity-constrained, AWS says “several quarters” to rebalance, and Google raised capex again. This is not a one-quarter story; it’s a multi-year land-and-power grab that will determine margin structures for the next cycle. Meanwhile, the Big three cloud players are on a pace to spend about $240B this year on CAPEX with AI revenue coming in at about 10% of that figure. We clearly have a big hurdle before that massive investment pays back.