Written by: Rita

The combined growth rate of the three major cloud providers jumped from 39% in the first quarter to 48% in the second quarter, marking the fifth consecutive quarter of acceleration. AWS grew by 37% (the fastest in 18 quarters), Azure by 43%, and Google Cloud by 82%. In a report released by Morgan Stanley on August 6, it was noted that AI-driven consumption is driving demand for core infrastructure, creating a positive consumption backdrop for Datadog, Snowflake, and MongoDB, which are about to report their earnings. However, expectations are also rising, with DDOG's valuation already implying guidance of over 30% growth, meaning any signals falling short of expectations could be amplified. Morgan Stanley maintains an overweight rating on all three companies but warns that the risk of disappointing expectations is accumulating.

Cloud growth accelerates for five consecutive quarters, driven by AI consumption

In the second quarter, the combined growth rate of the three major cloud providers accelerated from 39% to 48%, an increase of 880 basis points. AWS grew by 37%, accelerating for five consecutive quarters, achieving the fastest growth in 18 quarters. Azure grew by 43%, with management continuing to emphasize that demand exceeds available capacity. Google Cloud grew by 82%, and although it includes revenues from TPU system sales for the first time, management stated that even excluding this impact, cloud growth still significantly accelerated.

Morgan Stanley identified three key themes from the second quarter reports of cloud providers.

AI is a pervasive driver and increasingly consumer-oriented. AWS's annualized AI revenue has exceeded $25 billion, growing at triple digits. Azure pointed out that the adoption of AI-optimized databases (used for AI agent memory and retrieval) is accelerating. Google Cloud emphasized widespread demand for token consumption and TPU/GPU infrastructure.

The momentum for migration and core infrastructure is strengthening. AWS emphasized that AI is now driving core consumption, with training and agent tools running on CPU/cores, and non-AI revenue also accelerating to over 20%. Azure links the adoption of AI with accelerated cloud migration.

The data and analytics/database field remains strong. Azure's PostgreSQL revenue grew about 55% (accelerating for three consecutive quarters), with the newly launched managed PostgreSQL product HorizonDB. The number of paid Fabric analytics customers exceeded 40,000, a year-on-year increase of 60%.

DDOG, SNOW, MDB face high expectation tests

Morgan Stanley provided a specific judgment framework for the upcoming earnings reports of the three companies.

DDOG has a strong demand environment, and expectations are rising in parallel. Morgan Stanley believes that the core business growth rate of DDOG could improve further from over 20% in the first quarter, with expenditure from AI-native customers potentially accelerating. Investor dialogues indicate market expectations for DDOG’s second-quarter revenue growth range from 35% to 36%, coupled with moderate slowing guidance for the second half of the year, which could support stock performance. DDOG’s current stock price corresponds to approximately 69 times free cash flow for the fiscal year 2028, with valuations already reflecting optimistic expectations. Morgan Stanley maintains an overweight rating on DDOG with a target price of $300, based on a 69 times valuation of $4.65 per share in free cash flow for 2028, implying about 19 times the 2027 sales multiple.

Most of SNOW's consumption comes from AWS, and AWS's acceleration is a positive signal for product revenue. AWS's growth comes from both core infrastructure and AI, providing a favorable consumer backdrop for SNOW's revenue growth. Morgan Stanley maintains an overweight rating on SNOW with a target price of $300, based on a valuation of 39 times approximately $4.2 billion in free cash flow for 2030, implying about a 25% compound revenue growth assumption. If SNOW can demonstrate the network effects from data sharing and successful penetration of transactional workloads, there is upside potential.

MDB is unlikely to see an AI turning point this quarter, but AI has been a topic of discussion for 2026. Microsoft emphasizes the rapid adoption of AI-optimized databases (Cosmos DB and SQL), while Amazon highlights that vector databases are a competitive area in core infrastructure. However, competitive pressures are intensifying, with Microsoft's managed PostgreSQL revenue growing 55%, accelerating for three consecutive quarters. Morgan Stanley maintains an overweight rating on MDB with a target price of $380, based on a valuation of 37 times around $1.1 billion in free cash flow for 2029, implying about a 25% free cash flow growth assumption.

The expectation gap in cloud infrastructure software is accumulating

Morgan Stanley believes that the cloud infrastructure software sector is at a delicate juncture. On one hand, the accelerated growth of cloud giants provides a positive demand backdrop, with AI consumption driving core infrastructure demand. On the other hand, the valuations of DDOG, SNOW, and MDB have already reflected a lot of optimistic expectations, and any signals below high market expectations could trigger negative reactions.

The expectation gap for DDOG is the most pronounced. Market expectations for its second-quarter growth have risen to 35% to 36%, and if the company's guidance for the second half is simply "moderate slowdown" rather than "flat or acceleration," the stock price may come under pressure. The core issue for SNOW is that market expectations for its revenue growth are already high, and any signs of deceleration in consumption trends will be magnified. MDB is facing increased competitive pressure, as the accelerated growth of Microsoft PostgreSQL may erode MDB's incremental customers.

All three companies benefit from the long-term structural trend of cloud consumption, but in the short term, market expectations have outpaced fundamentals. The accelerated growth of the cloud giants validates the sustainability of AI consumption, but the valuations of cloud infrastructure software companies have already fully reflected this narrative. In the upcoming earnings season, the question is no longer whether demand exists but whether it is strong enough to support current valuations.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports (Morgan Stanley, August 6, 2026) by Chaoxiang Research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the text are the views of the analysts at that brokerage and only represent the position of their respective organizations, not the views of Chaoxiang Research, nor do they constitute any investment advice.

There are risks in the market, and decisions need to be made independently. This article should not be used as a basis for buying or selling any securities.