Microsoft, Amazon or Alphabet: Who Is Winning the Cloud Race?

As cloud computing transforms the digital landscape, industry giants Microsoft ((MSFT Quick QuoteMSFT - Free Report) ), Amazon ((AMZN Quick QuoteAMZN - Free Report) ), and Alphabet ((GOOGL Quick QuoteGOOGL - Free Report) ) dominate the race with their respective cloud platforms—Azure, AWS, and Google Cloud. Each company has invested heavily in AI, data storage, and innovative technologies to attract business clients and capture greater market share. Today, Amazon leads the group in cloud market share with 31% of the market, then Microsoft with 20% followed by Alphabet with 12%.

According to Synergy Research Group, in the third quarter of 2024, spending on global cloud infrastructure services surged by $15.7 billion, or 23%, over the same period in 2023, reaching over $84 billion for the quarter ending September 30. Over the last year, revenue from cloud infrastructure services hit $313 billion, underscoring the intense competition in this sector. Despite its massive scale, the cloud market continues to expand rapidly, with year-over-year (YoY) growth accelerating for the fourth straight quarter.

All three of these stocks reported earnings this week, with the results of their cloud services segments under the microscope. Amazon and Alphabet had positive reactions to their earnings results, while Microsoft saw some selling following its meeting. All companies had very positive results though, beating sales and earnings estimates. Also notable, Amazon stock has outperformed the market year-to-date (YTD), while Alphabet is about in line with market performance and Microsoft below.

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AMZN, GOOGL and MSFT Earnings Revisions

Amazon, Alphabet, and Microsoft have each made significant strides in cloud computing, but their earnings revision trends and growth forecasts tell slightly different stories. Both Amazon and Microsoft currently hold a Zacks Rank #3 (Hold), indicating a relatively flat earnings revision trend. On the other hand, Alphabet has a Zacks Rank #2 (Buy), suggesting a more favorable outlook driven by recent upward revisions to its earnings estimates.

Looking at long-term earnings growth projections, Amazon stands out with an anticipated annual growth rate of 27.2% over the next three to five years led by AWS. Alphabet’s expected growth rate of 17.6% per year reflects its continued growth in cloud services, YouTube and now self-driving with Waymo, while Microsoft, expected to grow at 14.7% annually, showcases steady gains in both its cloud and software offerings, including Azure and Office 365.

Their valuation also offers valuable insight into what investors can expect going forward. Today, Alphabet is trading at a one year forward earnings multiple of 22.4x which is below its 10-year median of 25.8x, Amazon at 38.4x is also below its 10-year median of 92.4x and Microsoft at 31.2x is above its 10-year median of 26.5x.

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AMZN, GOOGL or MSFT: Which Shares Should Investors Buy?

For investors seeking the best mix of growth potential and value, GOOGL and AMZN stand out as the most attractive choices among the cloud giants. Both companies not only boast strong earnings growth projections—with Amazon leading the group—but also offer relatively appealing valuations compared to Microsoft discounting for growth forecasts and historical valuations.

Alphabet’s recent performance in the cloud segment and ongoing investments in AI and self-driving cars show huge promise, and its forward price-to-earnings ratio remains appealing given its growth trajectory. Meanwhile, Amazon’s growth prospects are bolstered by its dominant position in e-commerce and the ever-expanding AWS, which remains a leader in the cloud infrastructure market. Additionally, Amazon’s valuation is more favorable relative to its growth rate and historical average, making it an attractive option for those focused on long-term potential.

In contrast, Microsoft’s substantial capital expenditures on AI and other tech advancements—though expected to drive future growth—have been flagged as a point of concern for now. While Microsoft remains a cloud and AI powerhouse, these elevated costs could temper near-term returns, making it comparatively less compelling at current valuations.

Overall, Alphabet and Amazon’s mix of robust growth forecasts and favorable valuations make them top picks in the cloud landscape for investors seeking growth at a reasonable price.