▶ Full Post Text
For a few years now the hyperscalers have been spending agressively, but it seems to me like spending this money is actually the easy part of the equation.
If we add up the contracted, not yet delivered cloud demand (Remaining Performance Obligations - RPO) of the hyperscalers (**Microsoft**, **Oracle**, **Google** and **Amazon**), we get a sum of about **$2.3 Trillion (*****We still don't know if this will ever get paid but still RPO is a better estimate than a forecast & a big portion of it is from frontier AI labs like*** ***OpenAI*** ***and*** ***Anthropic*****)**. In order to serve this massive RPO, **MSFT**, **GOOGL**, **AMZN**, and **META** are spending about **$660 Billion** a year, moving from asset-light software companies into owners of physical plants, real estate, and equipment.
The real battle for big tech isn't buying servers, but rather securing **24/7 power**. That kind of energy commitment completely breaks traditional budgeting. As JPMorgan put it, "*money can't buy you electric power*" when a project's start date depends on a years-long grid-connection queue. Out of these hyperscalers, Oracle is the outlier, it carries net debt of about **3x operating cash flow** (an order of magnitude above the others), and its free cash flow has gone negative. Amazon's trailing free cash flow also crossed into the red.
I have to say, these companies remain among the most cash-generative business ever built, and they're funding roughly half the build from cash and the other half from debt markets. **T. Rowe's Dom Rizzo** argues the funding gap is "*not that big*" against balance sheets like these, and that unlike **1998** (*the dot-com bubble*) the fundamentals are still accelerating.
Now the interesting part is that if we follow the money trail down the supply chain, we can see exactly who is extracting the value. It starts with the regulated utilities like **Southern**, **Duke** and **Dominion** who are accelerating capex to build grid capacity. These guys face huge regulatory hurdles and political blowback from residential ratepayers over increasing electricity bills. To go around the regulations, **NextEra** for instance is using a hybrid strategy by restarting a nuclear plant (*Duane Arnold*) for Google.
Because the public grid is too slow, big tech are chasing independent producers like **Constellation**, **Vistra**, and **Talen energy**. These companies **have 24/7 power** and they spend almost nothing to expand. Amazon and Meta are locking up deals with Vistra, Microsoft contracted to restart the *Three Mile Island* in Pennsylvania, and Google signed for small modular reactors with **Kairos**.
One layer down, we arrive to the equipment makers like **Vertiv**, **GE Vernova**, **Eaton** and **Caterpillar** which are facing an increasing days inventory outstanding (**DIO**). Usually this is looked at as **constraint** on these companies, but as the gross margins also keep on rising for some of these companies, even **hitting a record** for Vertiv and GE Vernova, this is pure **pricing power** for them.
There are so many other layers that plays into this like, cooling systems, precision HVAC, advanced packaging & foundry equipment, copper mining & refining for power grids, etc etc. that won't fit into this single post.
The takeaway is big tech is bleeding money and the wealth is pooling at the bottom with nuclear operators collecting and hardware manfucaturers hitting record margins while the the payers wait for delivery.
If you're interested to read more, I have the full write up with plots & figures on my free substack:
[https://secaura.substack.com/p/the-two-trillion-dollar-bottleneck](https://secaura.substack.com/p/the-two-trillion-dollar-bottleneck)