Although the market currently broadly exhibits concerns over the massive capital expenditures by tech giants in the field of artificial intelligence, deeming the return on investment as still unclear, one analysis points out that when viewed through a multi-decade long-term lens, the investments in AI infrastructure by Amazon, Google’s parent company Alphabet, and Microsoft are actually wise decisions.
Current market sentiment tends to favor returning capital to shareholders or investing in mature technologies that can generate returns more quickly. However, this short-sighted mentality actually creates opportunities for long-term investors. Viewed over a 50-year span, the investments these three cloud service providers are making in AI are entirely reasonable. The capital expenditure plans of Amazon (AMZN), Alphabet (GOOG) (GOOGL), and Microsoft (MSFT) are commensurate with the massive market opportunities they face.
Over the long run, once these tech giants have completed the build-out of the necessary computing power, future expenditures will be limited to routine maintenance and hardware upgrades. At that point, their cloud business units will transform into true “cash cows,” making today’s investments appear highly prescient. These three companies are already performing excellently, but with increased AI spending, their strength is expected to be further enhanced over the next five years.
Focusing on the specific performance of each company’s cloud business, each has its highlights and characteristics:
Amazon Web Services (AWS), under Amazon, remains the market leader, but its growth rate is the slowest among the three major cloud service providers. In the fourth quarter of 2024, AWS revenue grew 24% year-over-year, its best growth rate in over three years. Worth noting is the stellar performance of its self-developed chip business, which achieved triple-digit revenue growth in the fourth quarter. If AWS can maintain this growth rate throughout 2026, it would constitute a massive boost to Amazon’s overall performance.
Google Cloud, under Alphabet, is the fastest-growing player, posting an astonishing 48% year-over-year growth rate in the fourth quarter. An interesting detail is that despite Google Cloud’s growth rate far exceeding AWS’s, in terms of absolute revenue growth, Google Cloud increased by $5.71 billion year-over-year in the fourth quarter, while AWS increased by $6.79 billion. This means Google Cloud’s rapid growth has yet to challenge AWS’s absolute scale advantage. However, leveraging its leading position in generative AI models like Gemini, Google Cloud is expected to maintain rapid growth, becoming the most dynamic business segment within Alphabet.
Microsoft’s Intelligent Cloud segment, centered around Azure, is also performing strongly. Unlike Amazon and Alphabet, Microsoft does not disclose specific revenue and profit figures for its cloud business, only publishing growth rates. Data shows that Azure achieved 39% year-over-year growth in the fourth quarter, an impressive performance. More critically, Microsoft’s massive remaining performance obligation backlog stands at a whopping $625 billion, signaling strong revenue assurance in the future. Azure continues to be one of the core theses for investors holding Microsoft stock, a trend unlikely to change in the short term.
In summary, there is a massive and urgent market demand for AI computing power, and the three cloud service providers—Amazon, Alphabet, and Microsoft—are the primary conduits for meeting this demand. The analysis suggests that even if the market has reservations in the short term about the massive capital expenditures, from a long-term perspective, these three companies investing tens or even hundreds of billions of dollars in building AI infrastructure is undoubtedly the most correct strategic choice at present.
