Hyperscaler 2027 capex expectations revised up again as AI infrastructure demand continues

Overview

This report reviews key research themes in the European software and services industry over the past week, focusing on continued upward revisions to hyperscaler capex, the competitive landscape between open-weight and closed-source AI models, progress in SAP enterprise AI adoption, competition in legal information services, and growth and valuation opportunities at IONOS. The report argues that the rising number of AI models, falling prices, and democratization of applications will continue to expand compute and storage demand, but the expected relative market performance of the overall European software industry remains In-Line.

Core views

First, the AI infrastructure investment cycle has not yet shown clear signs of cooling, with cloud revenue, token processing volumes, data center commitments, and component demand all putting upward pressure on capex forecasts. Second, open-weight models do not necessarily weaken infrastructure demand; their lower cost, specialized deployment, and local and edge applications may accelerate AI diffusion through Jevons paradox. Third, SAP's direct AI revenue remains early, with the clearer near-term value lying in accelerating S/4HANA migrations. Fourth, Legora's entry into the U.S. foundational legal content market will intensify competition, but replicating RELX and Thomson Reuters' advantages in content coverage, expert interpretation, and citation networks remains difficult. Fifth, IONOS's customer momentum, pricing, cloud business, and AI products support an acceleration in growth in 2027.

Analysis framework

The report combines Visible Alpha consensus expectations, observations from the cloud computing and data center value chain, scenario analysis of open-weight models, AlphaWise channel checks, company results and management guidance, relative valuation, and historical forward P/E ranges to cross-validate AI infrastructure demand and the growth, competitive, and valuation outlook for European software companies.

Methodology notes

• Forecast analysisCapex consensus expectations analysis

  Assess the AI infrastructure investment cycle by aggregating annual capex forecasts for major hyperscalers.

  The report uses Visible Alpha forecasts to compare 2027 and 2028 capex growth and tracks the magnitude of forecast revisions since July to evaluate data center investment momentum.

• Scenario analysisThree-scenario framework for open-weight and closed-source models

  Assess three possible states: closed-source models winning, a mixed landscape, and open-weight models winning.

  This framework is used to analyze changes in model costs, competition, enterprise adoption, local deployment, and edge deployment, as well as their impact on compute demand and software business models.

• Channel researchAlphaWise reseller survey

  Measure paid adoption, pilot status, and customer spending intentions for Business AI and Joule through feedback from SAP resellers.

  Survey results show that actual adoption remains early, but channels have strong expectations for AI to drive SAP spending and S/4HANA migrations.

• Valuation analysisRelative valuation and historical range analysis

  Compare forward twelve-month P/E ratios, historical averages, and relative market valuations of European software and services companies.

  The report also references PEG, company growth expectations, and earnings guidance to judge whether valuations are sufficient to support further share price performance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ALPHABET INC (GOOGL)

  As a major hyperscaler, its capex and GCP revenue are important components of the AI data center investment cycle.

  Strengths

  Growth in token processing volumes, accelerating cloud revenue, and data center expansion can support long-term compute demand.

  Weaknesses

  High capital investment may weigh on short-term free cash flow and capital returns.

  Comparison

  Together with Microsoft, Amazon, and Meta, it forms the observation basket for capex by the four major cloud providers.

  Risks

  AI monetization below expectations, insufficient infrastructure utilization, or downward revisions to capex forecasts.

• META PLATFORMS INC (META)

  A major AI infrastructure investor whose capex forecasts continue to be revised upward.

  Strengths

  A large user base and AI recommendations and advertising applications help absorb incremental compute capacity.

  Weaknesses

  Realization of returns depends on advertising efficiency and AI product monetization, while the investment scale is large.

  Comparison

  Compared with pure cloud platforms, Meta's infrastructure returns depend more on internal consumer products and the advertising business.

  Risks

  Capex growing faster than revenue, regulatory pressure, and an extended AI return cycle.

• SAP SE

  Enterprise AI adoption and S/4HANA migration are important demand indicators for the European software industry.

  Strengths

  87% of resellers expect AI to increase customer spending, and 80% expect AI migration tools to increase willingness to migrate to S/4HANA.

  Weaknesses

  Paid AI adoption remains early, with 53% of customers mainly still in the pilot phase.

  Comparison

  Near-term opportunities are more tilted toward accelerating core ERP migrations rather than forming large-scale standalone AI revenue.

  Risks

  Slow conversion from pilots to paid deployments, tightening customer budgets, and rising implementation complexity.

• IONOS Group SE

  A European website hosting and cloud solutions company upgraded to Overweight in the report.

  Strengths

  Customer momentum, pricing improvements, cloud solutions, and AI products are expected to drive accelerated growth in 2027.

  Weaknesses

  Second-quarter 2026 adjusted EBITDA was below expectations due to the timing of cost investments.

  Comparison

  Approximately 0.93x PEG provides some valuation support for its relative growth prospects.

  Risks

  Failure to deliver the approximately €530 million adjusted EBITDA target, cloud business growth falling short of expectations, or slower AI adoption.

• RELX

  A major incumbent in the U.S. legal research market, facing potential competition from Legora's expansion into foundational legal content.

  Strengths

  Has more than 200 billion legal, news, and public records from over 50,000 sources, along with expert summaries and citation networks.

  Weaknesses

  A closed data system may prompt customers and new entrants to seek alternatives.

  Comparison

  Legora is building a foundational legal corpus, but replicating RELX's capabilities in comprehensive content, value-added interpretation, and citation networks remains highly difficult.

  Risks

  Accelerated maturation of AI synthetic research tools, convergence of legal workflows and research products, and pricing pressure from competition.

Key data

• 2027 combined capex forecast for five companiesApproximately $1.15 trillionCovers Amazon, Microsoft, Alphabet, Meta, and SpaceX.
• 2027 year-over-year capex growthApproximately 47%Expected to be about half of the 2026 growth rate.
• Upward revision to 2027 forecasts for the four major cloud providers20%Excluding SpaceX, change in forecasts since July 2026.
• 2028 capex forecast growthApproximately 11%Whether future forecasts continue to be revised upward is a key variable to watch.
• Enterprise open-weight model usage rateOver 60%Mainly used in specific scenarios where speed, security, or high-frequency calls are prioritized.
• SAP paid AI adoption33%Resellers report that their customer base has adopted paid Business AI or Joule, of which about 10 percentage points represent broad adoption.
• SAP customers mainly in AI pilot phase53%Indicates that enterprise AI adoption remains early.
• Share of resellers expecting AI to increase SAP customer spending87%Forecast window is the next 12 months.
• Share of resellers expecting AI migration tools to increase willingness to migrate to S/4HANA80%Forecast window is the next 12 to 24 months.
• IONOS fiscal 2027 revenue growth forecastApproximately 8.6%Calculated at constant currency.
• IONOS fiscal 2026 adjusted EBITDA targetApproximately €530 millionNovember 2026 third-quarter results are expected to validate progress toward the target.
• IONOS valuationApproximately 0.93x PEGBased on the Thursday closing price described in the report.

Impact & implications

Upward revisions to capex forecasts are a positive signal for demand for data center equipment, compute, storage, and cloud infrastructure, and also support continued expansion of AI capacity by hyperscalers such as Alphabet and Meta. For software companies, low-cost models may expand AI adoption and workloads, but also depress inference prices and increase competitive intensity. SAP is more likely to first facilitate S/4HANA transformation through AI migration tools rather than immediately generate large-scale standalone AI revenue; IONOS may benefit from cloud solutions, pricing improvements, and AI product innovation. New entrants in legal information services will increase competition, but RELX and Thomson Reuters' data scale and value-added content still create high barriers.

Risks

• Hyperscaler capex growth slows rapidly after 2027, or consensus expectations are revised downward.
• AI revenue and productivity improvements are insufficient to cover data center and model investments, putting pressure on returns on investment.
• Open-weight models depress inference prices and intensify competition among software and model vendors.
• Enterprise AI projects remain in the pilot stage for an extended period, with paid adoption and budget expansion slower than expected.
• Valuations of European software companies may still be affected by interest rates, macro demand, and execution deviations.
• The research institution has investment banking or other business relationships with some covered companies, which may constitute potential conflicts of interest.

What to watch

• Whether hyperscaler capex growth forecasts of about 47% in 2027 and about 11% in 2028 continue to be revised upward.
• Changes in GCP, AWS, and Azure revenue, token processing volumes, and data center commitments.
• Whether open-weight models can reach frontier performance, and the speed of penetration in enterprise local and edge deployments.
• Progress in SAP Business AI and Joule moving from pilots to broad paid adoption.
• Whether SAP AI migration tools materially accelerate S/4HANA conversion.
• IONOS November 2026 third-quarter results, the approximately €530 million adjusted EBITDA target, and the latest AI adoption metrics.
• The coverage quality of Legora's U.S. foundational legal content, and competitive responses from RELX and Thomson Reuters.