With stocks back at all-time highs, Wall Street strategists see signs that all that spending on AI is starting to pay off — at least for the megacap hyperscalers and their booming cloud businesses.

“We are seeing signs that the spending is leading to earnings,” Keith Lerner, chief investment officer at Truist, told Yahoo Finance.

JPMorgan analysts lifted their price target on the S&P 500 (^GSPC) to 8,000 from 7,800 last week, citing not only strong earnings and upward guidance revisions but also strong demand for cloud, in which companies rent computing power and storage.

Microsoft (MSFT), which saw record cloud revenue last quarter as its Azure business topped $100 billion in annual sales for the first time, anticipates further acceleration this quarter.

Amazon’s (AMZN) AWS growth hit 36.7% in the quarter, its fastest in 18 quarters, according to the company. Alphabet (GOOGL, GOOG) has also seen explosive growth in its cloud business. Even Meta (META) is weighing renting out some of its computing power.

Although free cash flow is expected to remain negative in FY27 for most hyperscalers, the business they have lined up is growing faster than their spending, a sign that demand is starting to catch up with all that capital expenditure, said JPMorgan strategist Dubravko Lakos-Bujas.

“This suggests that monetization may start ramping faster than spending, which should support stronger future revenue growth and further alleviate concerns about return on invested capital,” the analyst said.

Among the top four cloud service providers, cloud computing backlogs now exceed a whopping $2.3 trillion, up 16% from the first quarter, according to Bank of America research.

All of those commitments will require more investments. Alphabet, Amazon, Microsoft, and Meta are collectively projected to allocate roughly $725 billion to $760 billion to capital expenditures this year to help build AI.

“I love cloud right now because I think the cloud capacity is … the next bottleneck that has to be resolved in this AI data build-out after semiconductors and memory. ” Tom Essaye, founder of Sevens Report Research, told Yahoo Finance.

He said of his stock picks, “If I had to rank them in order, it would probably be Google, Amazon, and then Microsoft,” noting that Microsoft is last because of risk in its Office software segment, given the sector’s overall slump.

Even hiccups from router giant Cisco (CSCO) and chipmaker Cerebras (CRBS) last week weren’t enough to derail the AI theme.

“The market has this expectation for explosive growth. And very good is not good enough,” Defiance ETFs chief investment officer Sylvia Jablonski told Yahoo Finance.