Both are Amazon (AMZN 1.80%) and Microsoft (MSFT 1.14%) has achieved significant growth in the cloud computing business sector in 2024. Although Microsoft’s Azure had higher revenue growth, it was Amazon’s stock that outperformed in 2024.
Let’s take a look at which stocks could be bigger winners this year.
Growth of cloud computing
Cloud computing is one of the biggest growth areas due to the rise of artificial intelligence (AI), and organizations are leveraging the services of these companies to build their own AI models and applications.
Amazon created the cloud computing industry in 2006, launching Amazon Web Services (AWS) to help speed up infrastructure development for its partners and affiliates. Today, the infrastructure-as-a-service business is Amazon’s most profitable division, far outstripping its retail business. On a trailing 12-month basis, AWS generated operating income of $36.4 billion, while Amazon’s North American and international operations generated operating income of $24.3 billion.
The company currently has about 31% market share in the cloud computing space, well ahead of Microsoft’s Azure’s 20%. Last quarter, the division’s revenue rose 19% and operating profit rose 49%. This increase was driven by triple-digit growth in AI-related revenue.
Amazon benefits from AI in its AWS segment through a number of services, including Bedrock and SageMaker solutions. With Bedrock, the company provides a selection of basic AI models that customers can use as a starting point for building AI applications. In addition to our own models, we also offer models from Anthropic, Cohere, Meta Platforms, Mistral, and more. SageMaker, on the other hand, is a solution that helps customers build and train AI models and move them into production.
Amazon also makes custom AI chips specifically designed for training large-scale language models (LLMs) and AI inference called Graviton and Trainium, which were developed through its previous acquisition of Annapurna Labs. Several high-profile customers use the company’s chips, including Apple, Anthropic, and SAP.
Meanwhile, Azure is one of the fastest growing parts of Microsoft’s business, with revenue increasing 33% last quarter. Azure is a consumption-based service that benefits greatly from Microsoft helping customers build their own AI agents and co-pilots. The company said Azure OpenAI usage doubled in the last quarter as many customers began moving their apps from testing to production. The company also noted that Azure AI is contributing to increased usage of its data and analytics services, Azure Cosmos DB and Azure SQL DB.
Currently, a lack of capacity is constraining growth as Microsoft continues to build out its AI infrastructure to meet demand. The company expects Azure revenue to grow 31% to 32% on a constant currency basis in the second quarter of the fiscal year (ending December), followed by growth in the second half of the fiscal year due to further increases in historical capital expenditures (capex). is expected to accelerate. capacity.
beyond the clouds
Of course, Amazon and Microsoft are more than just cloud businesses. Amazon remains the world’s largest e-commerce and logistics company. The company also operates the streaming service Prime Video.
The retail division of Amazon’s business has been growing steadily, with North American sales increasing 9% and international sales increasing 12% last quarter. The company uses AI and robotics to increase warehouse and logic efficiency and reduce costs.
Amazon has also seen significant growth in its highly profitable sponsored advertising business. As a result, operating income growth significantly outpaced sales growth in the quarter, with North American operating income increasing 33% to $5.7 billion and International operating income increasing to $1.3 billion (compared to the same period last year). There was a slight deficit).
Meanwhile, Microsoft remains a dominant player in workplace productivity tools with its Microsoft Office 365 suite of tools, which includes programs like Word, Excel, and Powerpoint. The company’s Windows personal computing operating system is also a huge business. Additionally, it also owns LinkedIn, Xbox, GitHub, and other businesses.
The company has strong growth opportunities with its Copilot 365 AI agent. Microsoft continues to advance what these AI pilots can do, including the ability to use Python in Excel using only natural language prompts. At $30 per month per enterprise user and 365 subscriptions, this represents a significant revenue opportunity for the company going forward.
Image source: Getty Images.
Rating and verdict
When looking at future valuations, it’s worth noting that Microsoft and Amazon have different fiscal years. Amazon’s forward price-to-earnings ratio (PER) is currently running at just under 36 times analysts’ forecasts for next year (through December 2025), while Microsoft’s forward price-to-earnings ratio (PER) is currently running at just under 32.5 times analysts’ forecasts for this year (through June). It is traded at. 2025). Therefore, Microsoft is a cheaper stock. Revenue growth was also a little faster (11% for Amazon, compared to 16% last quarter).
Overall, I like both stocks heading into 2025 and think both will be long-term winners. However, I slightly prefer Microsoft of the two heading into 2025 due to its cheap valuation, fast revenue growth, and huge potential opportunity with AI co-pilot.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Jeffrey Seiler has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
