SAN FRANCISCO, CALIFORNIA – SEPTEMBER 16: Oracle chairman of the board and chief technology officer Larry Ellison delivers a keynote address during the 2019 Oracle OpenWorld on September 16, 2019 in San Francisco, California. Oracle chairman of the board and chief technology officer Larry Ellison kicked off the 2019 Oracle OpenWorld with a keynote address. The annual convention runs through September 19.

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Amazon is the clear cloud leader on at least two fronts.

It generates more revenue from cloud infrastructure services than any other company.

It also outspends competitors on the underlying gear that’s needed to deliver those services.

Google parent Alphabet and Microsoft are close behind when it comes to spending, with Alphabet a little higher as it attempts to surpass Microsoft as the number-two cloud provider by market share and revenue.

Then there are the laggards. IBM and Oracle don’t disclose revenue from their public clouds, but they do disclose total capital expenditures. That gives a sense of the scope of investment the companies are making up front to deliver these fast-growing services.

These investments are paltry compared with competitors. In the past four quarters, IBM and Oracle’s combined capital expenditures total less than one-quarter Microsoft. Amazon has spent seven times as much.

On Oracle’s latest earnings call Wednesday, CEO Safra Catz told analysts that Oracle plans a 131% increase in quarterly capital expenditures, compared with a 5% increase in the previous quarter.

“We continue to land many new customers, including ISVs, and we have some very large users coming online shortly that will require significant amounts of capacity,” she said.

For at least the past two quarters, Oracle has also run into capacity issues in the cloud. Additional spending could solve that problem. Oracle Chairman Larry Ellison said in December that the company was building cloud data centers as fast as it could.

It’s a big deal for Oracle to forecast $1 billion in capital expenditures. But in the context of other companies, it’s not so impressive.

“They’re $100 billion behind,” said Charles Fitzgerald, a former Microsoft general manager who has written about capital expenditures on his blog Platformonomics. “Adding $1 billion in incremental capex — that’s 1% of the gap they have to fill.” Amazon, Google and Microsoft together had more than $90 billion in capital expenditures in 2020.

Amazon had higher capital expenditures than any other company in the S&P 500 in the most recent fiscal year, according to FactSet data. The company reported $35 billion in 2020 cash capital expenditures, as well as almost $12 billion in property and equipment acquired under finance leases and another $2 billion in property and equipment acquired under build-to-suit arrangements. (Partly because the Amazon Web Services business has been so profitable, Amazon has accumulated $84 billion in cash, equivalents and marketable securities to work with. Oracle has around $36 billion.)

To be sure, not all of that money went to AWS. The company said in its most recent annual report that capital expenditures “primarily reflect investments in additional capacity to support our fulfillment operations and in support of continued business growth in technology infrastructure (the majority of which is to support AWS).” And the acceleration in Amazon’s capital spending coincides with a spike in revenue growth from Amazon’s online stores, which consumers flocked to during the coronavirus pandemic.

Even setting aside Amazon’s retail operations, Amazon, Google and Microsoft all run popular web applications for consumers — think Google’s YouTube and Microsoft’s Xbox Live — and capital expenditures enable those services.

IBM and Oracle don’t have such heavily used properties to justify additional capital spending, although IBM does own the Weather Channel’s mobile app.

If a company isn’t going to pour money into operating and capital expenditures or make acquisitions, it could always return cash to investors. IBM and Oracle have done that for years, and on Wednesday Oracle doubled down, announcing a 33% bump to its quarterly dividend.

“While we commend the capital returns to the shareholders via buybacks and a higher dividend, we think F3Q:2021 results are unlikely to change the current narrative on Oracle, which is that the stock is cheap but the company is growth-challenged from multifaceted headwinds across the infrastructure business, and prioritizing capital returns over organic/inorganic R&D, wrote Oppenheimer’s Brian Schwartz and Chad Schoening in a note to clients on Thursday. The firm has the equivalent of a hold rating on Oracle stock.

WATCH: Here’s what these investors are looking at in Oracle’s earnings



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