Big Tech valuations are facing intense scrutiny as a financial commentator warns that hyperscalers’ earnings are being artificially inflated by circular cloud computing contracts with AI giants OpenAI and Anthropic.
‘Total Mirage’ In Cloud Revenues
Recent data reveals a staggering dependency on just two artificial intelligence (AI) companies. A chart detailing the cloud backlogs of major U.S. providers shows that OpenAI and Anthropic account for roughly half of their future revenue commitments.
Specifically, these AI startups make up 49% of Microsoft Corp.‘s (NASDAQ:MSFT) $627 billion backlog and an estimated 51% of Amazon.com Inc.‘s (NASDAQ:AMZN) $464 billion backlog.
Alphabet Inc.‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google and Oracle Corp. (NYSE:ORCL) show similar reliance, at 43% and 54%, respectively.
Equity Analyst at Porter and Company, Ross Hendricks, argues that this deep concentration makes the heavily touted Price-to-Earnings (P/E) ratios of tech giants highly deceptive. According to Hendricks, calling stocks like Amazon, Microsoft, Alphabet, and Meta “cheap” relies on an “E” (Earnings) that is currently a “total mirage.”
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