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Over the last decade, cloud computing has emerged as one of the most profitable and rapidly growing sectors. Amazon and Microsoft are the dominant players in this revolution. Both companies provide leading cloud services via Amazon Web Services (AWS) and Microsoft Azure, respectively, and their cloud divisions have become significant revenue generators.
Microsoft Corporation (MSFT) and Amazon (AMZN) are among the world's most influential and valuable technology companies. While Amazon is well-known for its e-commerce dominance, it has also established a strong presence in cloud services, extending its reach into artificial intelligence (AI) and digital entertainment. Meanwhile, Microsoft is renowned for its legacy portfolio's software dominance and AI-powered cloud services.
Both stocks remain attractive investments in high-demand industries such as cloud computing and AI. Let’s find out which could be the better buy now.
Amazon Stock: The First Mover and Market Leader
Sitting at a market cap of $2.02 trillion, Amazon is better known as a retail powerhouse. Amazon Web Services (AWS), which debuted in 2006, has been a pioneer in the cloud infrastructure market. As of 2024, AWS controls 31% of the global cloud infrastructure market, making it the largest cloud provider.
Amazon stock has gained 26.8% year-to-date, compared to the S&P 500 Index’s ($SPX) gain of 20%.
AWS has a vast array of offerings, including computing power, storage, databases, machine learning, and other services for start-ups, enterprises, and governments, among others. The division consistently contributes a significant portion of Amazon's total revenue, increasing by 19% year-over-year in the second quarter to $26.3 billion. AWS remains Amazon's most profitable segment, with higher operating margins than the company's core e-commerce operations. Operating income of the AWS segment stood at $9.3 billion in Q2.
Furthermore, the remaining performance obligations (RPO) for AWS totaled $156.6 billion in Q2. RPO measures contractual revenue that has yet to be recognized. The weighted average life of an AWS long-term contract is 3.9 years. According to the company, the contract's term can be extended beyond the original contractual term based on customer usage.
In the second quarter, Amazon President and CEO Andy Jassy emphasized how AWS remains the top choice as more businesses modernize their infrastructure and migrate to the cloud, taking advantage of generative AI opportunities.
Amazon stock is trading at 33.4x forward 2025 earnings estimates, which, while appearing high, is reasonable given the rate at which analysts expect its earnings to increase. Analysts forecast earnings to grow by 62.9% in 2024 and 22.6% in 2025.
What Does Wall Street Say About AMZN Stock?
Overall, Wall Street rates Amazon stock as a “strong buy.” Out of the 46 analysts covering AMZN, 43 recommend it as a “strong buy,” and three recommend the stock as a “moderate buy.” The average price target price is $225.43, which implies about 16.8% potential upside from current levels. Furthermore, the Street-high target price of $265 suggests the stock could rally as much as 37.3% in the next 12 months.
Microsoft Stock: The Rising Contender
With a market cap of $3.18 trillion, Microsoft is well-known for its legacy portfolio, brand strength, and strategic acquisitions, all of which have contributed to outstanding financial performance over the past decade. While AWS has a larger market share, Microsoft Azure has been rapidly closing the gap, with a 25% market share, making it the most formidable competitor in the cloud computing market.
Microsoft’s stock has gained 14.8% YTD, compared to the tech-heavy Nasdaq Composite’s ($NASX) gain of 20.4%.
Microsoft's long-standing relationships with enterprises through its Office, Windows, and software products give it a competitive edge. Azure is frequently combined with other services, such as Microsoft 365, making it a more comprehensive solution for many businesses. Furthermore, Microsoft's strategic AI investments are becoming more integrated into Azure's offerings as a result of its 2019 investment into OpenAI.
Azure AI now serves over 60,000 customers, representing a 60% year-over-year increase as of the fourth quarter of fiscal 2024. Out of the company's three segments, Intelligent Cloud contributed the most to total revenue of $64.7 billion in the quarter. Revenue from Azure and other cloud services increased 19% to $28.5 billion. Operating income for the segment increased by 31% to $11.7 billion.
Management expects segment revenue to increase by 18% to 20% in the first quarter of fiscal 2025, with Azure leading the way at 28% to 29% growth.
Despite strong growth, Azure still trails AWS in terms of total market share. While it is closing the gap, AWS's first-mover advantage and expanded AI service offering remain formidable obstacles. However, I believe that with the help of AI and Microsoft's technological leadership, the company will be able to outperform Amazon in the coming years.
What Does Wall Street Say About MSFT Stock?
Overall, Wall Street rates Microsoft stock as a “ strong buy.” Out of the 39 analysts covering MSFT, 33 recommend it as a “strong buy,” three recommend the stock as a “moderate buy,” and two maintain a “hold.” The average price target of $502.94 implies about 16.4% potential upside from current levels. Furthermore, the Street-high target price of $600 suggests the stock could rally as much as 38.9% in the next 12 months.
Microsoft stock is trading at 32.6 times the consensus forward 2025 earnings estimate, making it nearly as valuable as Amazon. Analysts predict that MSFT's earnings will increase by 11.5% in 2025 and 16.1% in 2026, which is significantly lower than Amazon's earnings estimates for the next two years.
AMZN vs. MSFT: Which Stock is The Better Buy?
Ultimately, both Amazon and Microsoft are top-tier cloud giants, making it difficult to choose. Azure's rapid growth, combined with Microsoft's AI leadership and deep relationships with enterprises, make MSFT stock an attractive long-term investment in future technologies.
However, if you're simply looking for a pure-play cloud leader with high-profit margins and market dominance, AMZN stock is the safer choice. AWS remains the backbone of Amazon's profitability, with a larger market share. Furthermore, Amazon's diversification into advertising, logistics, and e-commerce positions the company for long-term growth.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
