Amazon vs. Microsoft: Which Cloud Computing Giant Is the Better Buy?

But if I had to pick just one stock to own right now, I'd go with Amazon

Image source: Getty Images

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

AI has been a big reason for this

Customers are using AWS solutions 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

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 dering better results than general-purpose graphic cessing units (GPUs) for specific AI tasks

This gives Amazon a cost advantage over rivals Microsoft and should lead to better operating leverage as usage scales

Beyond the cloud, Amazon is also using AI to imve its e-commerce, 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, imving customer satisfaction and reducing costly returns

It's also using AI to imve efficiency in its logistics operations

AI is helping map out better routes, while mapping tools Wellspring can help dery drivers better navigate complicated drop-offs at places large apartment complexes

Amazon is also using AI tools to help third-party sellers better market ducts and target customers more effectively

It's worth noting that its sponsored ad 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 ductivity software with grams 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

Azure is currently firing on all cylinders, but Microsoft has been running into capacity constraints

It will also shift more investment into shorter-d assets 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 in the cloud computing space

Microsoft has also deeply integrated OpenAI's nology into its own ducts

For example, the nology is used to help power its AI assistant copilots in Word, Excel, and other ductivity tools

It's added new copilots focused on cybersecurity and even launched Muse, an AI model designed to help develop and preserve older 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 vider 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 perty of OpenAI's pending acquisition of Windsurf

Microsoft's investment in OpenAI is one of the most attractive parts of its story

But OpenAI is looking to renegotiate the deal as it looks to restructure into a for-fit 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 vide 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 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

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors

Geoffrey Seiler has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia

The Motley Fool has a disclosure policy.