Amazon and Alphabet Bet Big on AI. Why History Says It's Time to Buy Both Stocks

Core Insights - Microsoft is scaling back on some data center leases while Amazon and Alphabet are committed to significant investments in infrastructure and AI [1][2] - Amazon plans to spend $75 billion on data center capital expenditures in 2025, while Alphabet aims for around$100 billion [3] - Both companies are developing custom AI chips to reduce costs and improve performance in AI workloads [9][10] Investment Strategies - Amazon's historical capital expenditures have led to substantial growth, particularly in e-commerce and cloud computing [4][5] - Alphabet's Google Cloud has recently become profitable, with a 142% increase in operating income to $2.1 billion [6] - Analysts have noted a correlation between Amazon's investment cycles and revenue growth, suggesting potential stock outperformance [7] AI Infrastructure and Cost Management - Amazon's data center investments are expected to yield attractive free cash flow and return on invested capital, with asset lifespans of 15 to 20 years [8] - Both companies are focusing on inference as a key driver of AI costs, with Amazon's Trainium2 chip offering a 30% to 40% better price-to-performance ratio than current GPUs [9] - Alphabet's new Ironwood chip is designed for inference, enhancing computational power and energy efficiency [10] Broader Business Implications - AI is enhancing operational efficiency in logistics and product recommendations for Amazon, while Alphabet is advancing its AI capabilities with models like Gemini 2.5 [14] - The current market conditions have led to attractive valuations for both Amazon and Alphabet, positioning them as solid long-term investments in AI [15]