The investment narrative surrounding artificial intelligence is undergoing a profound structural transformation.
According to the latest Q1 2026 Americas Internet Sector Earnings Review report from Goldman Sachs, market attention has shifted away from debates over capital expenditure scale. The focus is now on the revenue backlogs of hyperscale cloud providers, their rate of growth change, and the widening divergence between free cash flow and GAAP operating profits. This shift is reshaping investor valuation logic for the entire technology sector.
The report indicates that the combined revenue backlog for Google Cloud and Amazon Web Services (AWS) has reached approximately $832 billion, nearly doubling from around $358 billion six months ago following the Q3 2025 earnings season. This starkly illustrates the persistently widening gap between AI demand and computing power supply.
Concurrently, Goldman Sachs has raised its combined 2027 capital expenditure forecast for Google, Amazon, and Meta from approximately $586 billion to about $700 billion. The ongoing climb in capital intensity is making market demands for visibility into the path to investment returns increasingly urgent.
**AI Focus Shifts from "Spending" to "Returns"**
The Goldman Sachs report clearly states that the core conflict in the AI investment narrative has fundamentally changed. The previous market debate was dominated by whether capital expenditure levels were excessive. Now, investors are more concerned with when and how these expenditures will translate into visible revenue growth and free cash flow.
Specifically, Google raised its 2026 capital expenditure guidance range from $175-185 billion to $180-190 billion. Meta raised its guidance from $115-135 billion to $125-145 billion. Both companies hinted at further significant increases in capital expenditure for 2027.
Goldman Sachs believes capital intensity will remain elevated for several years. The drag on GAAP profits from depreciation and amortization will continue to be a core variable for investor focus in 2026 and beyond.
In the cloud computing sector, Q1 results significantly exceeded expectations. Google Cloud revenue grew 63% year-over-year, with its revenue backlog nearly doubling sequentially to around $460 billion, and incremental segment margins reaching approximately 57%. AWS revenue grew 28% year-over-year, its backlog grew 93% year-over-year, and its operating margin reached a record high of about 13%.
Goldman Sachs notes that while both hyperscale cloud providers plan significant capital expenditure deployments in 2026, computing power supply remains constrained by electricity and data center availability. The supply-demand imbalance is not expected to begin balancing until the second half of 2027 at the earliest.
**Meta Becomes Biggest Debate, Google Completes Sentiment Reversal**
Among Goldman Sachs' key buy-rated stocks, Meta has become the most hotly debated name among investors.
The core debates around Meta, according to Goldman, center on two points: first, the balance between its ambitious AI strategy and its expanding capital needs; second, how its platform and product portfolio will evolve as AI computing use cases accelerate.
Goldman Sachs believes that, setting aside uncertainties related to non-core AI investments like Reality Labs, Meta's Family of Apps business—centered on social connection, media interaction, advertising, and communication—remains fundamentally strong. The current valuation may be underestimated by the market, similar to phases of underperformance experienced by other large tech companies over specific 12- to 24-month periods in the past. Goldman Sachs maintains a Buy rating on Meta with a 12-month price target of $830.
In contrast, Google has undergone a significant reversal in investor sentiment. Goldman points out that Google has transformed from a stock negatively viewed through an AI lens in mid-2025 to one where investors are now almost universally positive on its AI prospects. This optimism spans consumer and enterprise use cases, technology infrastructure expansion, custom chip solutions, and the AI transformation of its core application businesses. Goldman Sachs maintains a Buy rating on Google with a 12-month price target of $450.
**Digital Advertising: AI-Powered Platforms Accelerate Share Gains**
In the digital advertising sector, overall ad spending stabilized in Q1, but market fragmentation intensified further. Platforms with scaled AI capabilities—including Google and Meta—saw accelerating ad revenue growth and continued to expand their lead in segments where they already hold dominant shares. Direct response and lower-funnel ad spending (particularly the portions supported by programmatic and AI-driven systems) continued to be prioritized over brand advertising. The latter faced significant uncertainty from late Q1 into early Q2 due to geopolitical turmoil.
From an individual stock performance perspective, Google (Search), Meta, App, Reddit, and Pinterest all reported revenue exceeding expectations. Platforms accelerated the integration of AI tools: Google launched Performance Max, Meta launched Advantage+, Pinterest launched Performance+, and App launched Axon 2.0. Goldman notes that smaller or sub-scale platforms continue to face headwinds, especially those with significant exposure to relatively soft sectors like consumer goods.
**Consumer Sector: Digital Economy Shows Resilience, but Concerns Loom for Second Half**
In the digital consumer sector, the Q1 earnings season was generally positive, with favorable demand trends in e-commerce, online travel, mobility, and delivery. Amazon's unit growth reached its highest post-pandemic level, with daily essentials categories growing significantly faster than the overall average. Uber delivered strong performance in both Mobility and Delivery segments. DoorDash showed steady demand trends, with its Q2 Adjusted EBITDA guidance exceeding market expectations.
However, Goldman Sachs also cautions that as pressure on consumer discretionary spending persists, the sustainability of the digital economy's disproportionate beneficiary status in the second half of 2026 is becoming an increasingly watched potential risk. Goldman stated it will closely monitor this issue in its upcoming Q2 industry channel checks over the next 4-6 weeks, with no reason to adjust existing forecasts at this time.
**Visibility into Investment Returns Becomes Core Variable for Valuation Reset**
Goldman Sachs emphasizes in the report that most stocks in its coverage have seen valuation compression year-to-date, with some negative factors already reflected in stock prices.
Historically, once positive revisions to operating profit expectations emerge—whether through efficiency gains offsetting costs or a moderation in investment pace—it has often been an effective signal to boost investor confidence, simultaneously driving both earnings estimate upgrades and valuation multiple expansion.
Goldman Sachs remains positive on three key themes: cloud computing, AI-powered digital advertising, and local commerce (encompassing e-commerce and delivery). It believes these areas can offer investors exposure to compound growth exceeding historical trends.
Furthermore, Goldman Sachs specifically notes that Instacart and Roblox offer relatively attractive risk-reward profiles. Among its key Buy-rated stocks, Goldman maintains Buy ratings on Amazon, Google, Meta, Uber, DoorDash, Netflix, and Spotify, with respective 12-month price targets of $325, $450, $830, $115, $280, $120, and $600.
Comments