Investing.com -- Citi said consensus estimates continue to underestimate future revenue growth and profitability tied to AI, despite hyperscaler cloud revenue accelerating to 48% in the second quarter from 39% in the first quarter.

The firm noted that collective backlog also accelerated to 151% versus 143% last quarter, reflecting continued acceleration in enterprise adoption. Cash Returns on Cash Invested over the last 12 months was relatively steady at 28% versus 29% in the first quarter.

Citi estimates that consensus continues to underestimate revenue growth by 500 basis points for 2027 and 900 basis points for 2028, accounting for the acceleration in capital expenditures in 2024 and beyond.

Cash Returns on Cash Invested across the hyperscalers was 28% in the second quarter, essentially flat with the first quarter despite the increase in inventories at Alphabet related to TPU sales. Returns are benefiting from higher compute prices driven by strong AI demand, resulting in accelerating revenue and backlog growth as well as margin expansion with hyperscaler EBITDA margins holding at 43% in the second quarter versus 43% in the first quarter.

Hyperscalers continued to signal sustained infrastructure intensity, with consensus raising combined 2026 capital expenditure forecasts by 0.8% following results. The aggregate 2026 capital expenditure forecast is now $730 billion, a 77% increase versus 2025.

Meta revised its guidance range to $130 billion to $145 billion versus its prior outlook of $125 billion to $135 billion, while Google lifted its range by 7% at the midpoint to $190 billion to $205 billion due to "an acceleration in delivery of capacity to meet growing demand." Amazon's outlook was raised by $20 billion to approximately $220 billion, citing higher memory costs.

Cloud service providers' revenue and backlog growth continue to signal strong revenue growth from enterprise AI applications and services, with GCP leading with a near 20-point quarter-over-quarter growth acceleration. Google, Microsoft, and Amazon's combined backlog expanded to $1.69 trillion in the second quarter versus $1.45 trillion in the first quarter.