Gnosly

It's not a perfect comparison. Google Cloud includes Workspace, and Azure doesn't include Microsoft 365. But the direction is clear.

If the gap keeps closing at anything like this pace, Google Cloud passes Azure in quarterly revenue sometime in 2027.

Source: zerohedge (X)

Source: zerohedge (X)

Source: Andreessen Horowitz (LinkedIn)

- AI investments are driving overall Search query growth, including commercial queries;

- Google Cloud revenue grew 103%, powered by extraordinary demand for our AI infrastructure and AI solutions. Our 1P model APIs now process nearly 32B tokens/min (up 40% QoQ).

- Strong momentum in model progress, with Argon and Carbon leading the frontier, and Genie 4 our most advanced new world model yet

That’s now slightly more than the other ~495 S&P 500 companies combined ($1.09 trillion). Their share of S&P 500 capex has climbed from 16% in 2023 to a projected 51% in 2027, and 2027 estimates are up nearly 90% this year.

1. Neoclouds are disorganized and poorly capitalized. Some are definitely better than others, however.

2. Hyperscalers are intractable, bureaucratic organizations that take 3 months to do an NDA and want 18-month escrow periods. We built our portfolio by competing against these terms because of our speed and simplicity. The more future assets orgs like ours win, the bigger the problem for the hyperscalers downstream (see 3).

3. There are delays in the existing pipeline that will catch people off guard in 2027. Hyperscalers will (obviously) react by focusing on their own internal compute needs over any third party. If the third party is a model company, they will tell them to go through their model router, where they will also take a non-trivial vig.

All of this is to say that it does look like there will be a lot of partially stranded compute and compute sitting in inventory in 2027 than is currently forecasted. This is bought and paid for but effectively under-earning (below total cost of capital) or collecting dust. We see this as true for everyone - model companies, hyperscalers, neoclouds except ONE (you can guess which one).

This dislocation will benefit two kinds of orgs: the non-bureaucratic big scalers who can build industrial scale quickly and the nimble, well-capitalized players feeding them.2027 will be a turbulent year because it will clear out a bunch of wrong/bad bets. It will also be a consolidation year for a few.

Many investors had expected free cash flow to stabilize in 2027 after its sharp decline. But the latest estimates suggest that the pressure will continue, with the anticipated recovery being pushed further into the future.