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Both Amazon (AMZN 0.38%) and Microsoft (MSFT -0.69%) saw strong growth in their cloud-computing business units in 2024. While Microsoft’s Azure saw the higher revenue growth, it was Amazon’s stock that outperformed in 2024.
Let’s see which stock could be the bigger winner this year.
Cloud-computing growth
Cloud computing has been one of the biggest areas of growth stemming from the rise in artificial intelligence (AI), as organizations use services from these companies to help build their own AI models and applications.
Amazon created the cloud-computing industry back in 2006 when it launched Amazon Web Services (AWS) to help speed up the infrastructure development it had started doing for partners and affiliates. Today, this infrastructure-as-a service business is Amazon’s most profitable segment, nicely exceeding its retail operations. On a trailing-12-month basis, AWS produced $36.4 billion in operating income, while Amazon’s North American and international operations generated operating income of $24.3 billion.
Today, the company has about a 31% market share in the cloud-computing space, nicely ahead of Microsoft’s Azure with a 20% share. Last quarter, the segment’s revenue climbed 19%, while its operating income surged 49%. The increase was led by AI-related revenue, which rose by triple digits.
Amazon is profiting from AI in its AWS segment through a number of services, including its Bedrock and SageMaker solutions. With Bedrock, the company provides its customers with a selection of foundational AI models that they can use as a starting point to help build AI applications. It offers models not just from itself but also from Anthropic, Cohere, Meta Platforms, Mistral, and others. SageMaker, meanwhile, is a solution to help customers build and train their AI models and then move them into production.
Amazon also makes custom AI chips designed specifically for training large language models (LLMs) and AI inference, called Graviton and Trainium, that were developed through its prior acquisition of Annapurna Labs. It has several well-known customers using its chips, including Apple, Anthropic, and SAP.
Azure, meanwhile, has been one of the fastest growing parts of Microsoft’s business, with revenue jumping 33% last quarter. Azure is a consumption-based service that is nicely benefiting from Microsoft helping customers build their own AI agents and copilots. The company said Azure’s OpenAI usage doubled last quarter as a number of customers began moving apps from test to production. It also noted that Azure AI is helping increase usage of its data and analytics services, Azure Cosmos DB and Azure SQL DB.
Currently, a lack of capacity is keeping growth restrained, as Microsoft continued to build its AI infrastructure to keep up with demand. It forecast Azure revenue to increase by 31% to 32% in constant currency in the fiscal second quarter (ended in December) and then to accelerate in the second half of its fiscal year as its prior capital expenditures (capex) kick in to add more capacity.
Beyond the cloud
Amazon and Microsoft, of course, are more than just their cloud businesses. Amazon is still the world’s largest e-commerce and logistics company. It also owns the Prime Video streaming service.
The retail side of Amazon’s business is growing solidly, with its North American sales rising by 9% last quarter, while internationally its sales rose 12%. The company is using AI and robotics to help lower costs by increasing warehouse and logics efficiencies.
Amazon is also seeing strong growth in its higher-margin sponsored ad business. This led operating income growth to greatly outpace revenue growth in the quarter, with its North American segment seeing a 33% jump in operating income to $5.7 billion and its international segment seeing operating income of $1.3 billion compared to a small loss a year ago.
Microsoft, meanwhile, is still the dominant player in workplace productivity tools with its Microsoft Office 365 suite of tools that include programs such as Word, Excel, and Powerpoint. Its Windows personal computing operating system is also a huge business. In addition, it owns LinkedIn, Xbox, GitHub, and other businesses.
The company has a robust growth opportunity with its Copilot 365 AI agents. Microsoft continues to advance what these AI pilots can do, including being able use Python in Excel with only natural language prompts. At $30 per enterprise user per month along with a 365 subscription, this is a big revenue opportunity for the company moving forward.
Image source: Getty Images.
Valuation and verdict
When looking at forward valuations, it is worth noting that Microsoft and Amazon are on different fiscal years. Amazon currently trades at a forward price-to-earnings (P/E) ratio of just under 36 times next year’s analyst estimates (ending in December 2025), while Microsoft is trading at just under 32.5 times this year’s analyst estimates (ending in June 2025). So Microsoft is the cheaper stock. It is also growing its revenue a bit faster (16% last quarter versus 11% for Amazon).
Overall, I like both stocks heading into 2025 and think both will prove to be long-term winners. However, with a cheaper valuation, faster revenue growth, and a big potential opportunity with its AI copilots, I slightly prefer Microsoft between the two for 2025.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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