The cash-burning intensity of tech giants in AI has surpassed the peak of the internet era; depreciation will be a future focal point.

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Wall Street is witnessing an unprecedented capital frenzy.

On June 10, according to news from ‘Chasing the Wind Trading Desk’, Morgan Stanley’s latest research report reveals a harsh reality: mega-cap cloud computing giants led by Amazon, Google, Meta, Microsoft, and Oracle are spending money on AI at an intensity that has officially surpassed the peak of the millennium-era internet bubble.

Morgan Stanley predicts that Capex-to-Sales ratios for these five giants will reach 36%, 44%, and 42% in 2026, 2027, and 2028 respectively—far above the 32% peak during the internet bubble. If finance leases are included, the actual capital intensity will be even higher.

The most important warning in the report is: In the next three years, Microsoft, Oracle, Meta, and Google will face a tsunami of depreciation exceeding $520 billion. If non-depreciation costs cannot be reduced or revenue expectations do not rise accordingly, this wave of depreciation will ruthlessly erode profit margins. Currently, the massive ‘Construction in Progress’ (CIP) temporarily conceals this impact, but the time for income statement reckoning will eventually come.

AI Spending Intensity Entirely Surpasses Internet Bubble Peaks

Morgan Stanley’s central conclusion is: the intensity of the current AI capital expenditure cycle has no historical precedent.

The bank predicts that mega cloud giants’ Capex-to-Sales ratio will reach 36% in 2026, rise to 44% in 2027, and linger at 42% in 2028—comprehensively exceeding the 32% historical peak of the internet bubble’s telecom sector.

Even more notable, if finance leases are included, capital intensity will rise substantially further.

Taking Microsoft as an example, Morgan Stanley expects its Capex-to-Sales ratio (including finance leases) to jump from 33% and 50% in FY26 and FY27 (traditional measure) to 44% and 64%. Oracle’s case is even more extreme, soaring from 76% and 115% to 101% and 189% for the same periods.

In absolute terms, these mega cloud companies contributed over 150% of the capital expenditure growth for US large caps in 2025, and are expected to account for about 40% of total capex in the Russell 1000 Index in 2026—doubling from 2024 levels.

Including supporting AI-related industries such as energy and industry, AI-related capital expenditures as a proportion of the entire market’s capex is expected to exceed 50%.

Meanwhile, the upward revision of capex forecasts is already significantly outpacing revenue and free cash flow forecast adjustments—this is the most structurally dangerous contradiction in the current AI investment cycle.

In the past nine months, consensus market forecasts for mega cloud capex in 2026-2027 have been collectively raised by about $900 billion.

By stock, Google's 2026 capex consensus forecast has been raised by 139% from a year ago (June 2025); Meta and Amazon have increased by 85% and 81%, respectively. Oracle's increase is the largest, at 175%.

However, at the same time, revenue estimates have not kept up with capex increases. Over a one-year window, Microsoft, Oracle, Meta, Google, and Amazon have raised capex forecasts by approximately $44 billion, $39 billion, $61 billion, $109 billion, and $89 billion respectively, while corresponding revenue adjustments are much smaller. This “scissors gap” implies continued capital intensity escalation, which will ultimately pressure margins through rising depreciation expenses.

Nearly $1 Trillion in Purchase Commitments and Over $800 Billion in Lease Commitments Constitute Enormous Off-Balance-Sheet Leverage

In addition to capital expenditures already shown on balance sheets, mega cloud giants have accumulated massive off-balance-sheet obligations through purchase and lease commitments—an often-overlooked risk exposure in the current AI cycle.

On purchase commitments, as of the latest disclosures, Google, Microsoft, Meta, Amazon, Nvidia, and Oracle collectively have nearly $982 billion in commitments—close to $1 trillion.

Among them, Google is the highest at $332 billion; Meta is at $238 billion; Amazon $155 billion; Microsoft $142 billion; Nvidia $104 billion; Oracle $11 billion.

Morgan Stanley believes that unless companies anticipate losses on these contracts, these obligations will not be reflected on the balance sheet until the relevant goods/services are delivered and payables recognized.

On lease commitments, mega cloud giants hold over $822 billion in lease commitments not yet commenced, including $261 billion for Google, $197 billion for Amazon, $183 billion for Meta, $106 billion for Microsoft, and $76 billion for Oracle.

Additionally, operating leases and finance leases already recognized on the balance sheet stand at $179 billion and $86 billion respectively.

The bank believes these off-balance-sheet commitments mean that the true operating leverage borne by these cloud giants is far higher than what financial statements suggest. At the same time, the mismatch between AI monetization and supplier payment timing is increasing days payable outstanding (DPO) for these firms. Currently, unpaid capex embedded in payables and accrued expenses among major AI players totals about $110 billion.

Depreciation: The Key Variable for Pressure on Margins

Morgan Stanley explicitly identifies depreciation expense as “the next key area to watch for margin pressure.”

Morgan Stanley estimates that the cumulative depreciation expense for Microsoft, Oracle, Meta, and Google in the next three years (FY26-FY28) will exceed $520 billion. As depreciation expense as a share of revenue continues to climb, to maintain margin forecasts, companies will have to rely on reductions elsewhere, or on massive revenue growth to offset it.

By single company, Oracle and Meta will feel the most acute pressure: Oracle’s depreciation-to-revenue ratio is expected to rise from 7% in FY25 to 28% by FY28; Meta's from 9% to 19%.

Currently, a large portion of capital expenditure remains recorded under “Construction in Progress” (CIP), not yet transferred to fixed assets and therefore not incurring depreciation. This accounting mechanism objectively delays the impact of capex on net income and profit margins, but this delay does not mean the pressure disappears—it is only accumulating.

Data shows that Oracle, Meta, and Google’s CIP balances have respectively grown by about 200%, 90%, and 55% over the past year. As this construction gets completed and transferred to fixed assets, depreciation expense will accelerate in the coming years, with a more concentrated and obvious impact on profit margins.

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The above content is from Chasing the Wind Trading Desk.

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