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Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have lost some luster on the stock market over the past few months. Amazon is down by more than 10% from the all-time high it hit this summer, while Alphabet's off by 14%. However, if you've got some uninvested capital to put to work, I think now is the perfect time to buy them, as some of the information they will release later this month could dramatically reshape how these stocks are viewed by the market.
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The first things you probably think of when you think of Alphabet or Amazon are the Google search engine and the massive e-commerce platform, respectively. While these two businesses made them what they are today, they're not what's going to take them to the next level -- cloud computing will.
At its core, the cloud infrastructure business is simply a rental business. A big tech company builds excess computing capacity, then rents that capacity out to clients for a profit. Clients are willing to pay a premium for this service as it's oftentimes still more cost-effective to run workloads on a third party's servers than it would be to stand up their own equipment. Furthermore, it allows the client to stay asset-light and gives them the ability to rapidly scale up or down as necessary.
Cloud computing is highly profitable for both Amazon and Alphabet, and their respective segments consistently generate operating margins of 35% or better. That makes them fantastic businesses. If they were stand-alone businesses, Amazon Web Services (AWS) and Google Cloud would both likely have trillion-dollar valuations.
However, the amount of capital needed to build out a massive cloud computing platform is immense, which is why having a strong core business to help fund this growth is so valuable. These two tech giants are spending massive amounts of money on capital expenditures: In 2026 alone, Amazon is expected to spend around $220 billion, and Alphabet is projected to spend around $200 billion. Those are monstrous figures, but they're only expected to get larger in 2027 and beyond.
The reality is that there is massive demand for AI computing power, and what is currently available is far from enough to run an AI-first society and economy. The looming transition to that new paradigm will support huge growth for cloud computing providers like Amazon and Alphabet.
AWS had an impressive second quarter, with revenue rising 37% year over year. During Q1, its revenue rose 28% year over year, so growth is accelerating. With Amazon spending so much on data center capital expenditures, this growth rate is bound to continue accelerating for some time. Another major acceleration in Q3 could send the stock to a new all-time high.
Alphabet is in a similar situation. Its cloud computing revenue soared 82% during Q2, up from 63% growth in Q1. Alphabet is also starting to sell its custom AI chips directly to some clients rather than only leasing their compute power through its own Google Cloud platform, which gives the company another revenue stream.
When these two report their Q3 results later in October, I think the information they give investors will be enough to send both stocks soaring to new all-time highs. That makes this the perfect time to invest in these stocks.
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Keithen Drury has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.
Now Is the Perfect Time to Buy Amazon and Alphabet Stock was originally published by The Motley Fool
