Wall Street is witnessing an unprecedented capital spending spree.
A recent analysis from Morgan Stanley reveals a stark reality: the intensity of AI-related capital expenditure by hyperscale cloud giants, including Amazon.com, Alphabet, Meta Platforms, Inc., Microsoft, and Oracle, has officially surpassed the peak levels seen during the dot-com bubble of the late 1990s.
Morgan Stanley forecasts that the capital expenditure-to-sales ratio for these five giants will reach 36% in 2026, climb to 44% in 2027, and hold at 42% in 2028, significantly exceeding the dot-com era peak of 32% for the communications services sector. When finance leases are factored into the calculations, the actual capital intensity is projected to be even higher.
The Core Warning: A Massive Depreciation Wave
The most critical warning in the report is that over the next three years, Microsoft, Oracle, Meta Platforms, Inc., and Alphabet will face a colossal depreciation wave exceeding $520 billion. If non-depreciation costs cannot be reduced or revenue forecasts are not adjusted upward, this flood of depreciation will significantly erode corporate profit margins. Currently, massive "construction in progress" (CIP) balances are temporarily masking this impact, but the moment of reckoning on income statements is inevitable.
Unprecedented Spending Intensity
Morgan Stanley's core assessment is that the intensity of the current AI capital expenditure cycle is historically unprecedented.
The bank's projection of a 36% to 44% capex-to-sales ratio for these companies far outpaces the 32% historical peak from the dot-com bubble.
For Microsoft, the ratio including finance leases is expected to jump from 33% and 50% under the traditional measure in FY26 and FY27 to 44% and 64%, respectively. Oracle's situation is more extreme, with its ratio projected to surge from 76% and 115% to 101% and 189% over the same period.
In absolute terms, these hyperscale giants contributed over 150% of the capital expenditure growth for large-cap US stocks in 2025 and are expected to account for roughly 40% of the Russell 1000 Index's total capex in 2026, doubling from 2024 levels. When including supporting industries like energy and industrials, AI-related capex is expected to exceed 50% of total market capital expenditure.
The Growing "Scissors Gap"
A concerning structural contradiction in this AI investment cycle is that the upward revision speed of capital expenditure forecasts is significantly outpacing that of revenue and free cash flow projections.
Over the past nine months, market consensus estimates for these giants' 2026-2027 capex have been revised upward by a combined approximately $900 billion.
At the individual stock level, consensus for Alphabet's 2026 capex is up 139% from a year ago; Meta Platforms, Inc. and Amazon.com are up 85% and 81%, respectively; while Oracle saw the largest upward revision at 175%.
However, revenue forecast revisions have not kept pace. For instance, capex estimates for Microsoft, Oracle, Meta Platforms, Inc., Alphabet, and Amazon.com were raised by about $44 billion, $39 billion, $61 billion, $109 billion, and $89 billion, respectively, over a year, while corresponding revenue increases were notably smaller. This growing "scissors gap" signals rising capital intensity that will ultimately pressure profit margins through higher depreciation expenses.
Significant Off-Balance-Sheet Leverage
Beyond the capital expenditure already on balance sheets, these giants have accumulated massive off-balance-sheet obligations through purchase and lease commitments, representing a risk exposure often overlooked in the current cycle.
Regarding purchase commitments, the combined total for Alphabet, Microsoft, Meta Platforms, Inc., Amazon.com, NVIDIA, and Oracle is nearing $982 billion, close to $1 trillion. Alphabet has the highest at $332 billion, followed by Meta Platforms, Inc. ($238B), Amazon.com ($155B), Microsoft ($142B), NVIDIA ($104B), and Oracle ($11B).
Morgan Stanley notes that these obligations do not appear on balance sheets until the goods or services are delivered and payables are recognized, unless the company expects the contracts to result in a loss.
For lease commitments not yet commenced, the total exceeds $822 billion, with Alphabet at $261 billion, Amazon.com at $197 billion, Meta Platforms, Inc. at $183 billion, Microsoft at $106 billion, and Oracle at $76 billion. Additionally, recognized operating leases and finance leases amount to $179 billion and $86 billion, respectively.
The bank argues that these off-balance-sheet commitments mean these companies' actual operating leverage is far higher than their financial statements suggest. Furthermore, a mismatch between AI monetization timelines and supplier payment schedules is pushing up days payable outstanding (DPO). Currently, unpaid capital expenditure embedded in payables and accrued expenses for major AI players totals approximately $110 billion.
Depreciation: The Next Core Variable Pressuring Margins
Morgan Stanley explicitly identifies depreciation expense as "the next key margin pressure item to watch."
The bank estimates that the cumulative depreciation expense for Microsoft, Oracle, Meta Platforms, Inc., and Alphabet over the next three years (FY26-FY28) will exceed $520 billion. As the depreciation-to-revenue ratio continues to rise, companies will need to rely on simultaneous reductions in other expense items or significant revenue growth to maintain profit margin expectations.
At the individual company level, the pressure is most pronounced for Oracle and Meta Platforms, Inc.. Oracle's depreciation-to-revenue ratio is projected to rise from 7% in FY25 to 28% in FY28, while Meta Platforms, Inc.'s ratio is expected to jump from 9% to 19%.
Currently, a large portion of capital expenditure remains in the "construction in progress" (CIP) account and has not yet been transferred to fixed assets to begin depreciation. This accounting mechanism objectively delays the impact of capex on net profit and margins, but this delay represents an accumulation of pressure, not its disappearance.
Data shows that CIP balances for Oracle, Meta Platforms, Inc., and Alphabet have grown by approximately 200%, 90%, and 55%, respectively, over the past year. As these projects are completed and transferred to fixed assets, depreciation expenses will accelerate in the coming years, leading to a more concentrated and significant impact on profit margins.
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