These Are Best Hyperscalers to Buy Now - Full Analysis

I get asked all of the time for my opinion on the hyperscalers. And now that all four of these companies have reported their Q2 results, I want to go through some of the highlights and also share my opinions on these businesses fundamentals and which ones I think are looking the cheapest and most expensive today. If you have been watching my channel for some time, then you probably already know that I own Amazon and Meta, which is kind of a giveaway as to which ones I think are looking the most attractive in the market today. But I still want to show you how I came to this conclusion and why I think that these two are the most interesting and also share why I think that Microsoft is fairly valued and Google is the most expensive out of the group despite all of them having incredible fundamentals. We're also quickly going to be taking a look at the revenue makeup of these businesses to try and identify which ones are more high-risk and which ones are more diversified. So you can pretty much consider this video my hyperscaler video after the second quarter. And with that being said, let's now dive into it. And I have a lot of information that I want to share with you. All right, so this first screenshot is a chart that I made using Claude. And every single quarter I track Amazon, Google, and Meta's advertising revenues. And Google's advertising revenues do include YouTube ads, by the way. And what this chart shows is the net dollar growth to each advertising business. And here we can see that Meta has been adding the most net revenue for the past three quarters. And over the past couple of quarters, Meta has really been the strongest company in terms of adding advertising revenue. I believe this shows that Meta is continuing to improve its advertising business the most because it's attracting the most amount of new advertising dollars. And I also believe that this shows that Meta's capital expenditures are actually improving the core business. This next chart shows us the trailing 12 months revenue of all of their different advertising businesses as well. And here we can see that Google is still the largest advertising business, but Meta is catching up and really starting to close the gap. What you will also notice is Amazon is growing the most consistently. Google and Meta both saw their advertising revenues dip in 2022 and Amazon grew consistently right through it. So, it seems like Amazon has the most durable advertising business. Now, to be clear, I believe that these charts are bullish for all three of these companies, but I'm just trying to show that Meta is performing the best. Meta's advertising growth rates have also been the highest out of this group for the past few quarters, even though Amazon is working from a much smaller base. So, I do believe that Meta's advertising business has been performing the best. And in a few more quarters, it could actually become the largest advertising business in the world and overtake Google. Moving on to the next screenshot. This one shows us the cloud revenue growth rates for AWS, Azure, and Google Cloud. Google had the most standout quarter in Q2 with its cloud revenue growing 82% year-over-year and continuing to accelerate. However, this number does include some TPU sales because Google did start selling TPUs in the most recent quarter. And I believe that without the TPU sales, its growth still would have been around 72% and would have still accelerated on a quarter-over-quarter basis. AWS is also seeing strong acceleration with 37% year-over-year revenue growth in the most recent quarter, and it's also catching up to Microsoft Azure's growth rates despite it being the much larger cloud business. In fact, Microsoft is the one cloud business that isn't seeing as much acceleration. The other two businesses are clearly seeing strong growth. Now, what I also think is worth taking a look at is the incremental revenue added on a quarterly and trailing 12 months basis. And the winner for net revenue added is actually Amazon. Google Cloud is adding nearly as much revenue as AWS, but it's working from such a smaller base. So, it makes the revenue growth rates look much more impressive. But AWS is actually still adding the most incremental revenue on a quarterly basis. Again, I still think that this is very bullish for Google Cloud, AWS, and Microsoft Azure, but I just wanted to point out that AWS is actually still growing the fastest in terms of net dollars added. All right, now let's head over to Stock Unlock, and I want to start comparing Amazon, Meta, Microsoft, and Google and some of their key fundamental metrics. So, the first one we're going to take a look at here is the capital expenditures that all of these businesses are doing. And in this chart, we can see that Amazon has been spending the most money consistently on capex by far. And in the trailing 12 months, they have now spent $173 billion on capex. Google comes in second with $132 billion spent. And then Microsoft with $116 billion. Now, what I find interesting is that if we scroll down here, Microsoft has been seeing the lowest compounded annual growth rate to its capex spend with a 61.4% kegger. This means that Microsoft is not growing its capital expenditures at the same rate as the other hyperscalers. And if we take a look at the chart on a percent change basis, we can see that Microsoft is coming in last with 193% net capex growth since the first quarter of 2024 versus 248% for Google and about 230% for Amazon and Meta. So Microsoft is the company growing its capital expenditures the least. And I also believe that this is why Microsoft Azure is not seeing as much revenue acceleration. It's very clear that both Google and Amazon are spending a significant amount more money to grow their cloud businesses and that is directly resulting in more acceleration for those cloud businesses. I also believe that this suggests that capex is directly equaling more cloud growth which I think is kind of obvious but the market is not convinced that the capex is going to pay off and actually result in positive business developments. And I believe that this kind of breaks that bare thesis against the hyperscalers too. All right, now let's move on to the next metric that I want to share with you. And this one is simply the revenue growth to all of these different businesses in terms of percentages. And here we can see that since 2019, Meta has grown its revenue the most at 243%. Amazon comes in second at 192, Google is 187, and then Microsoft is 156. So all of these hyperscalers are growing their revenues significantly, but it's kind of surprising that Meta is actually seeing the most revenue growth. And even in the most recent quarters, you can see that Meta has been seeing the most revenue growth and acceleration. And then we can also see that Google, which is the orange line in this chart, has seen some revenue acceleration relative to Amazon and Microsoft in the most recent couple of quarters. So Google's business looks like it is also continuing to accelerate which is being led largely by Google cloud. All right. Now let's move on to the operating cash flows of these businesses which I think is also a very important metric to pay attention to while they are all going through massive capex cycles. And here we can see that since 2019 Amazon has grown its operating cash flow the most at nearly 350%. Meta comes in second at 294%. Then we have Google at 265 and Microsoft at 250. Overall, all of these companies are continuing to grow their operating cash flows at a very fast pace. And if we zoom in here to the first quarter of 2024, then their growth rates all become nearly identical with Amazon growing 63%, Meta 70%, Microsoft 66%, and Google at 73%. So all of the hyperscalers are seeing their operating profits and cash flows grow significantly even over the past 18 months. If we do zoom out just a little bit though, we can see that Meta's operating cash flow growth rates did decelerate slightly in the most recent quarter, whereas Amazon, Google, and Microsoft all saw their operating cash flows actually accelerate in the most recent quarter. This means that Meta is kind of the standout of the most recent quarter, especially since its revenue growth rate was actually the highest out of the group, which does suggest that Meta's margins are also seeing compression. So, let's take a look at all of these companies operating cash flow margins now. And what's interesting is Amazon's operating cash flow margin is actually at an all-time high of 20.81%. Google's operating cash flow margin has increased to 41.6% 6% and Microsoft's operating cash flow margin is growing rapidly up to 55%. Now, what's funny here is Meta actually has the highest operating cash flow margin sitting at 57%. But it has declined slightly over the past quarter down from 57.7%. And this slight margin decline is why the operating cash flow growth over at Meta did decelerate slightly in the most recent quarter. Now, what I also find funny about this chart on your screen right now is that again, Amazon's operating cash flow margin is at an all-time high. Google's is continuing to expand and Microsoft's is also continuing to expand and quite rapidly. This means that these businesses operations are producing more and more cash for every dollar of revenue, which I believe suggests that their capex is paying off. I know that they are going through these massive capex cycles, but the actual operations of these businesses are producing more and more cash. If we take a look at all of their free cash flow margins though in the trailing 12 months, this is a much different story and every single hyperscaler is seeing its free cash flow margins decline. The market does not like this at all. But these companies are all going through that massive capex cycle right now. In the trailing 12 months, Amazon has the worst free cash flow margin and is actually free cash flow negative with a negative 1.5% margin. Then we have Google at 12%, Meta at 18% and Microsoft at 20%. So Microsoft's free cash flow margin is still the highest at 20%, but as we saw this is because they are the company spending the least aggressively and this is also resulting in Microsoft Azure not seeing as much of an acceleration as Google and Amazon. So that's kind of the trade-off that Microsoft is making. They're clearly not spending as much money on capex, but their cloud business is also not seeing as much reaceleration as the others, which are clearly spending on capex, which leads me to believe that Microsoft is the company being the most conservative with its capex buildout. But that is at a direct trade-off of future potential growth and capturing more of the cloud opportunity. And that's really what investors have to weigh. So now let's take a look at these companies free cash flow margins on a quarterly basis. And this is where it gets even more interesting. In the most recent quarter, Amazon's free cash flow margin was -4.4% and Google's was basically negative 5%. Meta was still slightly free cash flow positive. And then there was Microsoft with a nearly 22% free cash flow margin. And I once again believe that this suggests that Microsoft is the standout hyperscaler that is not willing to spend nearly as much money on capex and they want to maintain very high free cash flow while also building out its cloud business. The next metric that I want to take a look at is these companies operating margins because this is another pretty interesting story. Here we can see that Amazon's operating margin is at an all-time high of 12.08%. Then we have Google with a 33.1% operating margin that actually declined quarter over-arter. Then we can see that Meta's operating margin has declined down to 39%. And it has been consistently declining for the past year. Now you can see that Meta's operating margin hit a high of 44% in the second quarter of 2025 and over the past year again it has dropped by 5 percentage points. I think this is also why the market is most concerned about Meta and its capex buildout because it is clearly the company that is seeing its operating margins continue to decline over the past year. Whereas Amazon and Microsoft are actually seeing their operating margins grow and hit new highs. But overall, even Google's operating margin has been expanding over the past 5 years. And I do believe that this is because Meta is having a lot of one-time expenses that are impacting its operating margins. But over the long term, I do believe that Meta's operating margin will continue to reexpand get even higher than 44%. I think that they're just seeing some headwinds against their business right now. But overall, I do believe that Amazon, Google, and Microsoft seeing their operating margins continue to grow and hit new highs does suggest that the capex is once again paying off. All right, so now let's start to talk about valuation. And the absolute best metric to value all of these businesses right now, I believe, is the forward price to operating cash flow. given again that all of these businesses are investing aggressively back into their companies to try and expand. So right now I think that operating cash flow and price to operating cash flow is the best metric to focus on. And currently we can see that Meta is trading for the lowest price to operating cash flow by far sitting at a forward price to operating cash flow of only 8.6. Then we have Amazon sitting at 13.7, Microsoft at 16.4 and Google is the highest at 17.6. 6. So Meta on a price to operating cash flow basis is selling for about half of what Microsoft and Google are trading for and much lower than even Amazon. But as we're going to discuss later on in this video, I do believe that Meta's business is the highest risk out of all of them. So I do believe that it does deserve to trade for a discount to its peers. But I think that the discount is extremely wide right now and unjustified. So, what I also like to do is take a look at how the individual business has been valued historically. And one way we can do this is simply to scroll down and take a look at all of the company's medians versus their most recent forwardpric to operating cash flow. So, Amazon's median price to operating cash flow since 2021 has been about 14.6 and it's currently selling below that at 13.7. So, Amazon is below its historical average and median prices. Google's historical average and median have been 15 and 14.7 and it's currently trading for 17.6. So Google is actually trading above its historical average price multiples. And this is one of the reasons why I believe that Google is the most expensive hyperscaler today. Then we have Meta where its historical average is 12.2 and its median is 12.3 and its current is again 8.6. So Meta is trading significantly below both of its average and median historical price multiples. And you can see that Meta has historically traded for the lowest average price to operating cash flow. Again, I think that this is justified because it is the most risky business model. But even relative to its historical averages, it's also trading for the largest discount today. Then we have Microsoft where its historical average has been 22.2 and its median has been 22.3 and it's trading for about 16.4 times operating cash flows today. So Microsoft is also trading well below its historical averages and medians. Now, what we can also do is turn on the median for each one of these companies specifically. And here you can see that Meta's long-term median is around 13 times operating cash flow. And again, its forward priced operating cash flow is now around 8.6. And you can see how much of a discount it is trading for. If we do the same thing with Microsoft, you can see that its median is all the way up here at 22.4 and it's currently trading for about 16.8 times forward operating cash flows. So, Microsoft is also well below its historical averages. So, now let's do the same thing for Amazon. And you can see that its long-term median is that 16.5 line and it's currently trading for about 13.7 times operating cash flows. So, below its historical averages as well. Then lastly, let's take a quick look at Google and we can see that its historical median has been about 14.7 and it's currently trading for that 17.6. So, Google is the one hyperscaler that is trading quite a bit above its historical median and average price multiples. So, now what I want to do is show you my DCFS for all four hyperscalers after their most recent earnings report. And the first one is Amazon. So, over the next 3 years, I have Amazon growing its operating cash flows by 20% annually, which I think is pretty dang conservative. By the way, analysts are expecting Amazon to grow its operating cash flows by 28% annually out to 2029. So 20% is below what Amazon is currently seeing and what analysts are expecting. Then I have Amazon trading for a 20 price to operating cash flow and over the longer term on a trailing 12 months basis you can see that Amazon's median has been 25.3. So a 20 price to operating cash flow is well below how Amazon stock has traded historically. And with these inputs I get a 22.9% compounded annual growth rate to Amazon share price over the next 3 years. a fair value of $371 and a future stock price of 494 bucks. So, if Amazon can simply continue to grow its operating cash flows by 20% annually and get back to a 20 price to operating cash flow, then the stock could produce stellar returns over the next 3 years. Now, let's load up my Meta DCF here. So, over the next 3 years for Meta, I have them growing their operating cash flows by 15% annually. And analysts are currently expecting roughly 20% annual growth for Meta. So this is below analyst expectations and I have Meta trading for 14 times trailing 12 months operating cash flows. Now all the way back to about 2017, you can see that Meta's median price to operating cash flow has been about 16.8. So my price to operating cash flow of 14 is still well below Meta's historical median. And with these pretty conservative metrics, at least in my opinion, I get a 22.8% an 8% compounded annual growth rate to Meta share price over the next 3 years, a fair value of 827 bucks, and a future share price of roughly $1,100. So, even with some pretty modest growth, and a relatively low price multiple, I think that Meta share price could produce some stellar returns over the next few years as well. So, now let's load up my Microsoft DCF here. And in my Microsoft ECF, I have them growing operating cash flows by about 15% annually. And what's interesting is analysts are actually only expecting about 17 to 18% annual operating cash flow for Microsoft. So 15% is actually close to what analysts are thinking the business will do. Then I have Microsoft also trading for a 20 price to operating cash flow which is about 10% below their long-term median of 22. So I think that this isn't as conservative of a DCF as Amazon and Meta. And even with these less conservative metrics, we get a 16% compounded annual growth rate to the share price over the next few years, a fair value of 578 bucks, and a future share price of $757. So Microsoft on more optimistic expectations, at least in my opinion, results in a much lower compounded annual growth rate over the next 3 years. So finally, let's load up my Google DCF here. And over the next 3 years, I have Google growing its operating cash flows by 20% annually. And by the way, analysts are currently expecting 21% annual operating cash flow growth. So this is almost directly in line with what analysts are thinking. And I have Google trading for 18 times operating cash flow, which is right in line with their historical median. So in my opinion, this is the most optimistic DCF out of the entire group that we have done so far. Again, because it's right in line with analyst expectations for growth and right in line with the company's historical median price multiple. And with these more optimistic inputs, we get an 11% compounded annual growth rate to the share price over the next three years, a fair value of 354 bucks, and a future stock price of $469. So to put it simply, I think that Google could still produce double-digit returns if it meets analyst expectations and trades for its historical median multiple. But even in that scenario, it produces not nearly as much returns as a much more conservative DCF on even Microsoft. and Amazon and Meta specifically. And for these reasons, I have been buying a lot of Meta and Amazon in the market. And Amazon has become the second largest position in my portfolio. And Meta is quickly becoming the third largest position in my portfolio. I simply think that even with some pretty conservative DCFs, these stocks could produce near 20% annual returns over the next 3 years, which leads me to believe that they are offering the most attractive prices in the market today. Now, the final thing that I want to do is quickly show you the revenue breakdowns and makeups of all of the different hyperscalers. So, this first one is Meta. And you can see that 97.5% of Meta's revenue comes from its advertising business. And this is what I meant earlier on in the video when I said that Meta's business is the most risky in my opinion. It's simply because almost all of Meta's revenue, basically all of it, comes from advertising. So if advertising sees a slowdown or if Meta's advertising business seems to lose its competitive advantage, then the entire business could be impacted. To put it another way, Meta's business is the least diversified business of all of the hyperscalers. Next, let's take a look at Google. And in the trolling 12 months, Google has produced 54.5% of its revenue from Google search and other, 11.6% 6% from subscriptions, platforms, and devices, 17% from Google Cloud, 9.5% from YouTube ads, 6.6% from its Google network, and 0.3% from its other bets, which includes things like Whimo. So, you can clearly see that Google's revenue is much more diversified than Meta. However, over 50% of Google's revenue still comes from advertising. So, it is still heavily weighted to how advertising is doing. So again, if advertising sees a slowdown, then Google's business could be impacted in a pretty large way still. But overall, I do believe that Google's underlying business is much less risky and much more diverse than Meta. All right, now let's take a look at Amazon. Amazon produces about 37% of its revenue from online stores, 23.7% from thirdparty sellers, 19.1% from AWS, 9.8% from advertising, 6.8% 8% from subscriptions, 3% from physical stores, and then 0.9% from its other bets. So, Amazon's business and revenue streams are even more diverse than Google. And this is another reason why I believe that Amazon's underlying business is less risky than Google too. It is a very diversified business and a lot of these business segments are extremely profitable, growing very well and also accelerating. Then lastly, we have Microsoft where 39% of its revenue comes from server products and cloud services like Azure. 31% comes from Microsoft 365 commercial which is subscription software revenue. 6.6% comes from gaming which is Xbox. 6% comes from LinkedIn. 5% comes from Windows and devices. 4.6% comes from search and advertising. 2.8% comes from Microsoft 365 consumer. 2.7% comes from Dynamics and then 2.5% comes from enterprise and partner services. So Microsoft's revenue is also very diverse and I do view Microsoft's business as kind of like a tech ETF at this point. So Microsoft has a lot of different and diverse highly profitable revenue streams and I also believe that this is one of the main reasons why it has historically sold for a premium relative to its other hyperscaler peers. And as we saw with Meta with it having nearly 98% of its revenue coming just from advertising, I believe that that is why it has always sold for a discount relative to its other hyperscaler peers. And I think that it's justified and it will continue to trade at a forever discount. So let's now wrap up the video with a quick summary of all of the highlights that we discussed. The first point here is that Meta has the fastest growing ads business and is about to pass Google for the number one advertising business in the world. However, Google has the fastest growing cloud business in terms of percent growth rates. But Amazon has added the most annual recurring revenue to its cloud over the past trailing 12 months and in the most recent quarter, too. And Microsoft's cloud business is not accelerating as much as its other cloud peers. Meta's margins are being compressed the most while the other businesses are actually seeing their margins expand. However, Meta's overall revenue growth is the strongest and by quite a wide margin, seeing 28% year-over-year growth last quarter. Meta also trades for the lowest multiple relative to the group by far and well below its historical averages and median. With that being said, as we saw, Meta has the least diversified business though, which means that it is also the most riskiest hyperscaler out of the group. Amazon and Meta also have the least amount of execution priced in. And this is reflected in the conservative DCFS that I did in this video where even with those conservative metrics, these stocks could produce over 20% compounded annual growth rates over the next 3 years. And then lastly, Google is selling quite a bit above its historical averages and does look like the most expensive hyperscaler in the market right now. And that is the reason why I am not buying Google or Microsoft and instead I am buying Amazon and Meta. I simply believe that Amazon and Meta are offering a lot more value in the market at their respective prices today. But with that being said, that is going to wrap up today's video. And if you enjoyed, then please remember to leave a like on it and let me know what you think down in the comment section below. Do you agree with my analysis? And do you think that these stocks are the cheapest or do you think that I am wrong and Microsoft and Google are looking more attractive? Let me know and I would love to discuss. Also, if you want to see more content like this, then please consider subscribing to my channel. And lastly, as always, thank you so much for tuning in.