Amazon and Microsoft Lead the Cloud Market. One of Them Has Far Greater Upside.
The Motley Fool ·
Key points
- AWS and Azure are the two largest cloud providers, with both experiencing accelerated AI-driven growth: Microsoft Azure grew 48% year over year to $33.2 billion last quarter, while AWS rose 39% to $46 billion in the same period.
- Microsoft maintains a strategic edge through its relationship with OpenAI, including priority access to OpenAI models through 2032 and a 27% stake in the AI model maker, underpinning a sizable backlog of $677 billion.
- Amazon’s custom chip initiative, including Trainium and Graviton CPUs, was reported as a $20 billion run-rate business (roughly $50 billion including internal use), with the chip segment more than doubling last quarter and commitments rising 20-fold.
- Amazon plans to begin selling its custom chips to external data centers late next year, signaling a move to monetize its hardware advantage beyond internal use.
- The chips reduce inference costs and improve margins, giving AWS a competitive profitability edge over GPUs, a core factor in the argument for greater upside at Amazon.
- Amazon’s broader moat includes a dominant e-commerce arm and strong operating leverage from robotics, automation, and AI—factors that amplify segment profitability faster than revenue growth.
- Policy and tariff developments could act as a catalyst if trade barriers ease, potentially boosting both platforms, though the near-term trajectory hinges on AI adoption and cloud demand.
Summary
Amazon and Microsoft dominate the cloud market, with AWS and Azure driving rapid AI-enabled growth. The author argues Amazon has greater upside due to its expanding custom chip business, which boosted efficiency and scales toward external sale next year, and strong, multi-year AI affiliations (Anthropic and OpenAI). Microsoft maintains momentum through OpenAI-backed models, a large OpenAI backlog, and ongoing Azure expansion, but the edge for Amazon lies in lower-cost, self-built infrastructure that could accelerate profitability. With macro and policy shifts potentially easing data-center constraints, both firms remain key beneficiaries, but Amazon is seen as the more compelling long-term bet. The takeaway is a bullish stance on Amazon stock relative to Microsoft, contingent on continued AI-driven demand and chip-related leverage.
This summary was written with AI. The full story has every detail.