This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
When it comes to cloud computing, Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) are the clear leaders. Both are seeing strong growth, both are leaning heavily into artificial intelligence (AI), and both are investing billions to meet increasing demand.
But if I had to pick just one stock to own right now, I'd go with Amazon. Let's break down why.
Amazon
While best known for its e-commerce operations, Amazon basically invented the cloud computing industry due to its own struggles trying to scale up its infrastructure. Today, Amazon Web Services (AWS) is the largest cloud computing provider in the world, with nearly 30% market share.
AWS is also both Amazon's most profitable segment and fastest-growing, with revenue climbing 17% last quarter. AI has been a big reason for this. Customers are using AWS solutions like Bedrock and SageMaker to help them build and run their own AI models and apps. Bedrock gives companies access to foundation models they can customize, while SageMaker is more of an end-to-end solution. Once these models are built, they then run on AWS infrastructure, locking customers into a recurring, high-margin business.
On top of that, Amazon has built its own custom AI chips through its Annapurna Labs unit. Trainium is designed to train large language models (LLMs), while Inferentia handles inference. These chips are optimized for performance and cost, consuming less power and delivering better results than general-purpose graphic processing units (GPUs) for specific AI tasks. This gives Amazon a cost advantage over rivals like Microsoft and should lead to better operating leverage as usage scales.
Beyond the cloud, Amazon is also using AI to improve its e-commerce business, as well. The company is now using agentic AI to power autonomous warehouse robots. These robots continue to become more sophisticated and can perform multiple tasks. Some can even spot damaged goods before they're shipped, improving customer satisfaction and reducing costly returns. It recently just surpassed 1 million robots in its warehouses.
It's also using AI to improve efficiency in its logistics operations. AI is helping map out better routes, while mapping tools like Wellspring can help delivery drivers better navigate complicated drop-offs at places like large apartment complexes.
Amazon is also using AI tools to help third-party sellers better market products and target customers more effectively. It's worth noting that its sponsored ad business has become one of the largest digital ad platforms in the world and is growing quickly.
Microsoft
There's no denying that Microsoft is a powerhouse. The company has long been the dominant player in worker productivity software with programs such as Word, Excel, and PowerPoint, and its Windows operating system powers most non-Apple computers.
However, Microsoft's cloud computing unit Azure has been its big growth driver, with AI accelerating that momentum. Last quarter, Azure revenue jumped 33% year over year (35% in constant currency), with AI services making up nearly half of the growth.
Azure is currently firing on all cylinders, but Microsoft has been running into capacity constraints. To address that, Microsoft plans to increase its capital spending in fiscal 2026. It will also shift more investment into shorter-lived assets like GPUs and servers, which it said are more directly tied to revenue.
Microsoft made an early and aggressive investment in OpenAI, and the ability to give customers access to the start-up's leading LLM is one of the biggest reasons why Azure has been taking market share in the cloud computing space. Microsoft has also deeply integrated OpenAI's technology into its own products. For example, the technology is used to help power its AI assistant copilots in Word, Excel, and other productivity tools. At $30 per month per enterprise user, Microsoft's copilots have been a nice growth driver for the company.
Microsoft has also expanded AI beyond Office 365. It's added new copilots focused on cybersecurity and even launched Muse, an AI model designed to help develop and preserve older video games. Meanwhile, its GitHub Copilot has been one of its best-performing, helping drive solid growth for its code-hosting and collaboration platform.
However, the company's relationship with OpenAI has become strained. Microsoft is no longer the exclusive data center provider for the company, and the two have been fighting over the terms of Microsoft's investment, including whether it will get access to the intellectual property of OpenAI's pending acquisition of Windsurf.
Microsoft's investment in OpenAI is one of the most attractive parts of its story. It's currently entitled to 49% of OpenAI Global LLC's profits, capped at roughly 10 times its nearly $10 billion investment. But OpenAI is looking to renegotiate the deal as it looks to restructure into a for-profit company.
The better buy
Both Amazon and Microsoft are great companies with strong cloud computing platforms and big AI opportunities. However, Amazon has the edge.
Amazon's biggest advantage is that its cloud computing platform is vertically integrated. It can provide a wide range of services from custom chips to infrastructure to high-margin services. Its Inferentia and Trainium chips are helping lower its cloud computing costs, and AWS offers a wide array of foundation AI models, both from itself and other leading tech companies.
Microsoft, meanwhile, is reliant on expensive chips from Nvidia and AI models from OpenAI, with whom tensions have been growing. Microsoft is looking to develop its own AI chips, but it was recently reported that its next-generation Maia AI chip has been delayed. Azure has been growing more quickly than AWS, but it faces a lot more unanswered questions at the moment.
Microsoft is a solid stock to own long-term, but right now, Amazon is the better buy.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
