Microsoft vs. Amazon: Which Cloud-Computing Stock Will Outperform in 2025?

Cloud Computing Growth - Cloud computing has been a major growth area driven by the rise of artificial intelligence (AI), with organizations leveraging services from companies like Amazon and Microsoft to build AI models and applications [2] - Amazon Web Services (AWS) is Amazon's most profitable segment, generating $36.4 billion in operating income over the trailing 12 months, compared to $24.3 billion from its North American and international retail operations [3] - AWS holds a 31% market share in cloud computing, ahead of Microsoft Azure's 20% share, with AWS revenue growing 19% and operating income surging 49% last quarter, driven by triple-digit growth in AI-related revenue [4] Amazon's AI and Cloud Strategy - Amazon is leveraging AI in AWS through services like Bedrock and SageMaker, offering foundational AI models and tools for building and training AI applications [5] - The company has developed custom AI chips, Graviton and Trainium, specifically for training large language models (LLMs) and AI inference, with notable customers including Apple, Anthropic, and SAP [6] - Amazon's North American retail sales grew 9% last quarter, while international sales rose 12%, with AI and robotics being used to improve warehouse and logistics efficiency [9] - Amazon's higher-margin sponsored ad business saw strong growth, with North American operating income jumping 33% to $5.7 billion and international operating income reaching $1.3 billion, compared to a loss a year ago [10] Microsoft's AI and Cloud Strategy - Microsoft Azure's revenue grew 33% last quarter, driven by increased usage of AI services, including OpenAI, which doubled in usage as customers moved apps from test to production [7] - Azure's AI capabilities are also boosting usage of its data and analytics services, such as Azure Cosmos DB and Azure SQL DB [7] - Microsoft is expanding its AI infrastructure to meet demand, forecasting Azure revenue growth of 31% to 32% in constant currency for the fiscal second quarter, with further acceleration expected in the second half of the fiscal year [8] - Microsoft's Copilot 365 AI agents present a significant growth opportunity, with a $30 per enterprise user per month pricing model, enhancing productivity tools like Excel with natural language prompts [12] Beyond Cloud Computing - Amazon remains the world's largest e-commerce and logistics company, with additional businesses like Prime Video streaming [9] - Microsoft dominates workplace productivity tools with its Office 365 suite, including Word, Excel, and PowerPoint, and also owns businesses like LinkedIn, Xbox, and GitHub [11][12] Valuation and Growth Comparison - Amazon trades at a forward P/E ratio of just under 36 times next year's analyst estimates (ending December 2025), while Microsoft trades at just under 32.5 times this year's analyst estimates (ending June 2025) [13] - Microsoft is growing revenue faster, with a 16% increase last quarter compared to Amazon's 11% growth [13] - Microsoft is seen as the cheaper stock with faster revenue growth and significant potential in its AI copilot offerings, making it slightly preferred over Amazon for 2025 [14]