Amazon, Microsoft, Meta, Google, and other giants are still pouring money into building AI data centers and buying GPUs. Will these new investments ultimately generate sufficiently high returns? We can start by looking at two metrics: ROIIC specifically measures how much new profit a company's newly invested capital generates, and WACC is the cost of capital used to make these investments. Theoretically, as long as ROIIC > WACC, the company's new investments are still creating economic value. Data from Morgan Stanley shows that for a considerable period in the future, the return on investment in AI will far exceed the cost of capital.
Morgan Stanley predicts that the ROIIC of major hyperscale cloud service providers such as Amazon, Alphabet, Microsoft, Meta, and Oracle will bottom out around the fourth quarter of 2027, and then rebound.
