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The cloud computing sector is one of the most interesting parts of the stock market right now. There are several companies spending more than $100 billion each to build and equip new data centers this year, and their capital expenditures are projected to rise once again in 2027. That's a ton of money being invested in this sector, but these companies wouldn't be doing it if they didn't see major potential.
The big three providers of cloud computing infrastructure are Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). While Microsoft and Alphabet have exciting prospects, I'm far more bullish on Amazon for one reason: Amazon Web Services (AWS) has a bigger influence on its overall results than the cloud arms of Microsoft and Alphabet have on those companies. And it's easy to see why I'm so optimistic about it.
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AWS is the biggest cloud computing service in the world, with a market share of about 28%. It was also the first to be launched. Although it looked to be falling behind the other two on artificial intelligence (AI) at the start of the AI race, Amazon has caught back up and established itself as a popular option for running AI workloads.
In its pursuit of that market, it has been spending more and more on cloud infrastructure, and it's on course for around $220 billion in data center capital expenditures this year. That leads the pack, but what returns on investment are shareholders seeing from those outlays?
During the second quarter, AWS revenue grew 37% year over year. For comparison, it grew 28% during the first quarter and 24% in 2025's fourth quarter. That's a strong acceleration for a business the size of AWS, so it's clearly seeing a strong return on investment.
However, investors also want to see these cloud segments turn a real profit, and that's what separates AWS from its peers.
During the second quarter, AWS' operating income surged 64% year over year, and this is what makes Amazon a better stock pick than Microsoft or Alphabet. The company may be best known for its massive e-commerce operation, but such businesses produce pretty slim operating margins. By contrast, the core business units of Microsoft and Alphabet are high-margin software and advertising businesses.
GOOG Operating Margin data by YCharts; TTM = trailing 12 months.
During the second quarter, AWS posted a 39% operating margin. Alphabet's Google Cloud wasn't far off with a 36% operating income margin. Microsoft doesn't publicly break out its margin figures for individual segments, but I'd guess Azure's operating margin is likely in the same neighborhood.
So, Azure is actually not boosting Microsoft's operating profit margin by growing quickly, and Alphabet's Google Cloud is only helping its operating margin minimally. But AWS is providing a huge boost for Amazon as a whole: The segment accounted for 60% of Amazon's total operating income during the second quarter. This means that the faster AWS grows, the faster the company's overall profits grow, which gives it huge operating leverage.
Anytime a company is on the doorstep of major growth in a high-margin business like this, it should get investors excited, as major stock returns can follow. While all three tech leaders will reap huge benefits from growing their cloud computing business, the effect will be most felt at Amazon.
With Amazon spending hundreds of billions of dollars a year to transform its business, it's on the right track. I wouldn't be surprised to see its stock greatly outperform the other two over the next few years. As a result, I think it's one of the best big-tech stocks to buy now.
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Keithen Drury has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
Not Microsoft. Not Alphabet. Here's the Cloud Giant I'm Most Bullish About. was originally published by The Motley Fool
