Monologue: What The Hell Are The Hyperscalers Doing?

**Ed Zitron** (0:02)
CAUSOMEDEA Superstition, fear and jealousy. Welcome to this week's Better Offline monologue. I'm your host Ed Zitron.
MUSIC As ever, please subscribe to the newsletter. We're running a one-year anniversary deal right now. Their link will be in the episode notes. And we're giving you 10 bucks off the annual rate for life. And even if you die and come back to life, I'll give it to you anyway. The deal runs through midnight on Sunday, but if you happen to hear this after this point, email me at ez at betteroffline.com, or EZ at betteroffline.com for the British and Canadians in the audience. And I'll sort you out. I'm generous like that. And I love my premium mates. Really some of the best analysts work out there. It's very deep. I've got the terminal going now, the sample and all sorts of data, the many numbers I read every week are driving me truly insane. And with that in mind, today's monologue starts with a simple question. What the fuck are hyperscalers doing? Now, I realize I've asked this question maybe 100,000 times in the last two years, but it's begun to get so incredibly stupid that I'm actually a little exasperated. McKinsey Spawn and Google CEO Sundar Pichai announced in Wednesday's earnings that Google would raise its year-end capital expenditures to somewhere between $195 billion and $205 billion, after burning $80.6 billion in the first half of the year. And this suggests that Google will spend another $114 billion by the end of 2026 They're going to be doing like $55, $60 billion a quarter. It's fucking insane. It's fucking stupid. I'm sorry for swearing, but it's absolutely deranged. What are you doing, Sundar? You've already spent $288 billion in CapEx since 2022, and all you've got to show for it is several also-ran LLMs and one indeterminately large customer in Anthropic, who you've also invested $13 billion in.
Now, one answer might be that Anthropic helped juice Google Cloud's growth by 82% year over year in this quarter. But considering that Google doesn't actually break out how much of that is from AI or from Anthropic, or really from anything, it's difficult to say what exactly this money is doing other than turning its free cash flow negative for the first time since Google went public.
While I can't say for sure how much Anthropic is spending, I do believe it's taking up the vast majority of Google's AI infrastructure and representing most of its cloud growth.
Google Cloud was, up until fairly recently, last year or so, a much smaller business than Microsoft Azure or Amazon Web Services, had been growing somewhere between 22% and 30% year over year, hitting 33.9% year over year growth in the third quarter of 2025
That very same quarter, Google and Anthropic announced a deal to expand its use of TPUs, which is Google's special GPUs, in a contract worth, and I quote, tens of billions of dollars. Mysteriously, can't imagine how, Google's next three quarters of cloud revenue growth showed 47.7%, 63.4%, and 82.1% year over year growth. Whatever could that be? Where did that come from? I can't work it out. Can you, dear listener? What could it possibly, it's anthropic. It's anthro, it's obviously anthropic. Except in those same quarters, Google's capital expenditures went up 95%, 107%, and 100% year over year, absorbing every dollar of cloud revenue and then some. In fact, outside of the fourth quarter of 2024, Google's capital expenditures have outpaced cloud growth by at least 12% year over year for two goddamn years. And if your pushback is, well, Google's spending that capex on something else, no, they're not, they're not. Maybe they got a couple billy coming in from Google workspace and cucking their various subscribers with annoying things. It's coming from Anthropic. Google is not making that money from Gemini. Your ass must be crazy if you think that's the point. But all of this begs the question, when exactly does all of this pay off? How does it pay off? What does the payoff even look like? And why am I one of the few people asking these questions?
Hyperscalers have now spent, I estimate, about $1.1 trillion. I haven't seen Amazon and Microsoft's quarters yet, but I'm going to guess they spent a good amount on CapEx. They now spent $1.1 trillion bloody dollars on capital expenditures. And when you ask them to tell you how much revenue they made from said expenditures, they look at you like that meme of Brendan Fraser from The Whale.
Anyway, here's a fun fact for you. Thanks to my own reporting on OpenAI's Auditive Financials, we know that it's spent $17.2 billion on Microsoft Azure in calendar year 2025, a year when Microsoft's Intelligent Cloud segment made $120.4 billion in revenue. The segment grew as a result, 26% year over year.