The artificial intelligence boom is only getting bigger, with just a handful of big tech companies on track to spend over $300 billion on AI infrastructure this year alone. Alphabet (GOOG 1.04%) (GOOGL 1.13%) recently bumped its capital expenditure outlook for the full year from $75 billion to $85 billion. Amazon (AMZN -1.46%) is on track to spend over $100 billion in capital expenditures, mostly going toward new data centers and servers to fill them. And Microsoft (MSFT -2.55%) is planning a whopping $10 billion of spending per month for the current quarter.
By far the biggest beneficiary from all that spending has been Nvidia (NVDA -2.78%). The chipmaker has seen its data center chip sales soar over the last few years, including a 56% jump in its most recent quarter. And demand doesn't seem to be slowing down anytime soon, with analysts expecting revenue to grow nearly as much next year as this year (on an absolute basis).
But another AI giant just disclosed it has $368 billion of contracted revenue, and it's doing everything it can to keep up with the massive demand it's seeing.
Image source: Getty Images.
Huge long-term commitments give this stock a massive runway
All three major cloud computing platforms disclose their backlog, or remaining performance obligations, and all three are seeing healthy growth.
- Alphabet said its Google Cloud backlog climbed to $108 billion last quarter, a 37% increase from a year ago.
- Amazon said its Amazon Web Services backlog totaled $195 billion, a 25% increase from a year ago.
- Microsoft revealed a $368 billion backlog last quarter, a 37% increase from last year.
Indeed, Microsoft is the AI giant with $368 billion coming down the pipeline.
There's an important caveat about Microsoft's remaining performance obligations. It includes contracts for commercial software and services like Microsoft 365 and its Azure cloud computing platform. As such, it's not a perfect apples-to-apples comparison with Amazon or Alphabet. Still, the growth is impressive, and the metric Microsoft shares suggests Azure may be growing its commitments significantly faster than its two biggest rivals.
Importantly, Microsoft's backlog growth is stemming from a growing number of long-term commitments. Microsoft said just 35% of those commitments will be recognized as revenue in the next 12 months, with the total increasing 21% year over year. The amount recognized beyond 12 months grew 49%. By comparison, Alphabet saw the percentage of commitments set to be recognized as revenue within 24 months drop from 55% to 50% last quarter. Amazon saw the average length of its long-term commitments get a slight bump from 3.9 years to 4 years.
That shift can skew just how much faster Azure is growing compared to its rivals. If Microsoft is extending the length of its contracts, it'll naturally have a bigger backlog. Still, the long-term commitments put Microsoft in a position to generate strong growth for Azure for years to come. Management shared that Azure is now a $75 billion business, after exhibiting 39% year-over-year revenue growth last quarter. It expects 37% growth next quarter. That makes it roughly 50% larger than Google Cloud, but growing faster. And its massive backlog means it can continue outpacing the competition in the future.
Demand continues to outpace supply
Microsoft management has been telling investors for well over a year that demand for its cloud computing services, particularly its Azure AI services, is higher than its supply. That remained the case in the fourth quarter. To be sure, that's not a situation unique to Microsoft. Both Amazon and Alphabet have made similar comments on their earnings calls.
But Microsoft is spending more than anyone building out its data centers. As mentioned, it committed to spending $30 billion on capex this quarter, and management refused to provide guidance on how much it might spend through the rest of fiscal 2026. But given the massive and rapidly growing backlog of demand for its AI services, investors should be happy to see Microsoft build as quickly as possible. It's important to remember that Microsoft also holds a leading position as enterprises migrate more of their systems from on-premise to the cloud, specializing in hybrid cloud environments using Windows. As such, overbuilding shouldn't be a huge concern.
Azure is the biggest growth driver for Microsoft right now, but it's not the only one. As mentioned, that $368 billion backlog also includes commitments for Microsoft 365, Dynamics 365, and Microsoft's other enterprise software and services. Those are getting a boost from AI as well, as Microsoft integrates its Copilot AI assistant into its software. That helps workers get more out of its products and increases productivity. As a result, Microsoft is able to charge more and gain bigger commitments from commercial customers.
Investors will have to pay a premium price to buy Microsoft stock. With a forward P/E ratio of 32, it trades for a much higher price than Alphabet, which sports a 23 multiple. It's even approaching Amazon's 34 times earnings multiple, despite the cloud computing leader historically trading for a much higher earnings multiple. But with a massive pipeline of long-term growth ahead for the company, it's well worth paying up for.
