AI Cloud Investment Outlook
Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) are at the forefront of the cloud computing market, planning to spend nearly $400 billion on capital expenditures in 2026, primarily on AI data centers. Microsoft reported its Azure and cloud services revenue grew 40% year-over-year in Q3 of fiscal 2026, with total cloud revenue at $54.5 billion, while its AI unit surpassed a $37 billion annual run rate, increasing 123%. In contrast, Amazon’s AWS saw a revenue growth of 28% in the same period, marking its quickest growth in over three years.
Amazon’s AWS generated $14.2 billion in operating income, accounting for nearly 60% of the company’s operating profit. With a signed-contract backlog of $364 billion, AWS’s spending on cloud growth is expected to reach $200 billion this year. Both companies face challenges as they invest heavily in AI: Microsoft’s operating margin stood at 46.3%, while Amazon’s free cash flow plummeted from nearly $26 billion to about $1 billion over the past year.
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