JPMorgan Warns AI Industry's Profit Gap Unsustainable; Capital Spending Growth to Decelerate in 2027

According to JPMorgan Chase's research report released on Wednesday (July 1), the AI industry's profit gap between semiconductor makers and cloud service providers has widened to unsustainable levels. The bank predicts the five major cloud service providers (Google, Amazon, Meta, Microsoft, and Oracle) will spend $758.1 billion on capital expenditures in 2026, doubling year-over-year, and rising to $925 billion in 2027. However, growth is expected to decelerate sharply to 22% in 2027 and decline further thereafter.

JPMorgan identified two potential outcomes: a positive scenario where cloud providers improve profitability through AI service monetization (token pricing and compute rental), or a negative scenario where high chip maker margins squeeze downstream profits, forcing cloud providers to cut capital spending and reducing semiconductor demand. The bank emphasized monitoring AI compute rental prices and large language model token prices as key indicators, as these will determine whether the industry sustains its growth trajectory or enters a profit-squeeze cycle.