Citi: US Internet and Software — 4Q25 Cloud Compare: Surging Capex Growth Outweighs Cloud Growth
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Citi analyzes fourth-quarter 2025 results across the four largest cloud service providers, revealing that aggregate industry revenue accelerated to $81.7 billion, representing a 34.7% year-over-year growth rate. However, this robust expansion was overshadowed by a sequential surge in capital expenditures exceeding $11 billion, significantly outpacing expectations. Amazon Web Services maintained its market leadership with a stable 44% share, while Microsoft Azure's share dipped slightly to 30%, Google Cloud rose to 22%, and Oracle Cloud Infrastructure reached 5%. Growth trajectories diverged notably; Microsoft Azure decelerated by one percentage point to 38% growth due to capacity constraints and Copilot prioritization, whereas Google Cloud surged 14 percentage points to 48% growth. Oracle Cloud Infrastructure accelerated sharply by 12 percentage points to 66%. Capital expenditure trajectories were particularly striking. Microsoft reported quarterly capex of $35.1 billion, substantially exceeding consensus estimates, while Amazon and Google deployed approximately $27 billion and $14 billion respectively, reflecting year-over-year increases of 52% and 95%. Forward-looking book metrics underscore exceptional demand visibility. Microsoft commercial bookings skyrocketed 230%, bolstered by a new $25 billion OpenAI Azure commitment. Oracle's remaining performance obligations surged 437% to roughly $523.8 billion, driven by massive contracts with Meta and NVIDIA. AWS backlog climbed 38% to $244 billion, and Google Cloud's backlog reached $240 billion. Profitability dynamics varied, with Azure cloud gross margin contracting due to AI infrastructure scaling, while operating margins expanded significantly at both AWS and Google Cloud.