Will AI-attributable cloud services gross margins compress by more than 300 basis points YoY at major hyperscalers in 2026?

As of mid-2026, major hyperscalers like AWS, Microsoft Azure, and Google Cloud are experiencing intensified competition, driving down prices and potentially compressing margins. Reports indicate cloud providers have seen a 240 basis point compression in margins year-over-year due to increased investment in AI capabilities and market pricing pressures, suggesting that a further 300 basis points compression is plausible, especially given rising operational costs and demands for lower prices in an increasingly competitive landscape.