Investment Rating - The industry investment rating is "Positive" (maintained) [3] Core Insights - North American cloud providers are experiencing a significant increase in capital expenditures, driven by AI applications and cloud services, despite a decline in ROIC [1][3] - The capital expenditure for the four major North American cloud providers reached $112.63 billion in Q4 2025, a year-on-year increase of 62.36%, exceeding Bloomberg's consensus forecast by 4.3% [3][7] - AI applications are still in their early stages, with token consumption growing exponentially and creating new supply while empowering core internet platform businesses [2][28] Summary by Sections Capital Expenditure - North American cloud providers are in an upward capital expenditure cycle, with a compound annual growth rate (CAGR) of 39.97% from 2022 to 2025 [7] - Amazon's capital expenditure for 2025 is projected to be $131.06 billion, with a year-on-year growth of 68.76%, and expected to exceed $200 billion in 2026 [10] - Microsoft's capital expenditure for FY2026 is expected to grow at a rate of 58.35% compared to FY2025 [11] - Google's capital expenditure for 2025 reached $91.45 billion, a 74.07% increase from 2024, with projections for 2026 between $175 billion and $185 billion [14][16] - Meta's capital expenditure for 2025 was $71.46 billion, with an expected increase to between $115 billion and $135 billion in 2026, reflecting a growth of 60.93% to 88.91% [19] Revenue Growth - The cloud business revenue for the three major cloud providers (Google, Microsoft, Amazon) reached $886.15 billion in Q4 2025, a year-on-year increase of 29.97%, surpassing Bloomberg's consensus forecast by 4.97% [23] - Microsoft’s cloud revenue in Q4 2025 was $329.07 billion, with Azure revenue growing by 39% year-on-year [23] - Google Cloud revenue for Q4 2025 was $176.64 billion, a 47.8% increase year-on-year, with an annual recurring revenue (ARR) exceeding $70 billion [24] - Amazon AWS revenue for Q4 2025 was $335.79 billion, a 23.6% year-on-year increase [24] AI Applications - AI applications are creating new products and empowering core business functions, with significant growth in both consumer (2C) and business (2B) applications [28][29] - The number of active users for AI products from major tech companies has seen substantial growth, with Google Gemini reaching 750 million monthly active users in Q4 2025 [30] - AI is enhancing core business operations through improved recommendation systems, leading to increased user retention and engagement [33] Cash Flow and Profitability - The strong cash generation capabilities of core businesses and cloud services support capital expenditures, with operating profit margins for AWS and Microsoft Cloud between 35% and 45% [35] - Despite high profitability, the free cash flow for Google, Microsoft, and Amazon decreased year-on-year in Q4 2025, indicating a potential concern regarding the sustainability of capital expenditure growth [37]