The cloud market has experienced a boom in recent years, with the COVID-19 pandemic prompting many companies to move their businesses online to suit hybrid working styles. Meanwhile, recent advances in artificial intelligence (AI) have further boosted the industry. Cloud leaders such as Amazon (AMZN 1.39%), Microsoft, and Alphabet are now in a race to offer the best AI services and attract more customers to their respective platforms.
As a result, now is an excellent time to consider investing in this high-growth industry. Amazon and Advanced Micro Devices (AMD 2.67%) are two attractive options, with one responsible for the largest cloud market share and the other home to the hardware necessary to develop the industry.
So is Amazon or AMD the better cloud stock? Let's assess.
Amazon
According to Grand View Research, the cloud market hit $484 billion in 2022 and is projected to expand at a compound annual growth rate of 14.1% through 2030. With the most market share in the business, Amazon's platform Amazon Web Services (AWS) is well-positioned to substantially profit from that growth.
AWS has diversified Amazon and strengthened its business against short-term headwinds. For instance, amid macroeconomic declines last year, the company's e-commerce business reported operating losses totaling $10.6 billion. However, AWS' $22.8 billion in operating income kept Amazon profitable in fiscal 2022.
After the launch of OpenAI's ChatGPT last November, future cloud development is almost wholly focused on AI. The advanced chatbot has pushed countless other companies to begin developing competing services. AWS responded by launching a generative AI accelerator on April 4, a 10-week program designed to help start-ups push their AI efforts to "the next level."
Amazon's cloud platform already offers AI services such as image analysis, data extraction, chatbot builders, speech recognition, and more. The company's further push into AI is promising for its future. However, it will likely continue to face steep competition from Microsoft and Alphabet as they work to dethrone Amazon.
Advanced Micro Devices
This chipmaker may seem like an odd choice as a "cloud stock," with AMD best known for its consumer PC components. However, the company's data center business is crucial in the cloud market. Data centers power cloud platforms like AWS, Microsoft's Azure, and Alphabet's Google Cloud, with AMD's hardware taking on much of the workload.
Cloud development has boosted AMD's earnings in recent years, with its data center segment reporting a 64% increase in revenue of $6 billion in fiscal 2022. Meanwhile, operating income climbed 86% to $1.8 billion.
AMD expanded its position in the industry with the launch of its Genoa series data center chips in November 2022. The new chips beat Intel's competing Sapphire Rapids line, released in January 2023 after two years of delays. Benchmarks have also proven AMD's offerings outperform Intel's in "general purpose workloads," according to Bernstein analyst Stacy Rasgon.
With cloud giants Azure, Google Cloud, and Oracle already signed on as clients for AMD's Genoa chips, the company is in a powerful position in the expanding cloud market.
Is Amazon or AMD the better cloud stock?
Amazon's stock has risen 45% in the last five years, while AMD's has soared more than 850%. These companies are in vastly different stages of maturity, suggesting AMD has more room for long-term growth and will likely offer investors more significant gains.
Regarding cloud success, Amazon is in a powerful position as the industry's leader. However, its competitors are only growing stronger, with Microsoft currently ahead in AI services thanks to its hefty investments in start-up OpenAI (ChatGPT developer). As a result, AWS' cloud future may not be 100% secure.
Meanwhile, AMD's role in cloud computing is only expanding with the success of its data center chips. Its ability to sell its hardware to any cloud company gives its business stability as it only stands to profit from the development of its clients' platforms.
Data by YCharts
Moreover, the chart above illustrates how AMD's free-cash-flow growth since 2020 has grown considerably compared to Amazon's. The figures strengthen the argument for AMD, with its financials headed in the right direction.
As a result, AMD is the better cloud stock and a fantastic buy amid a cloud market boom.
