Cloud computing has recently been one of the hottest areas of tech, with companies in the space pouring tons of money into capital expenditures (capex) to build out artificial intelligence (AI) data centers to try to keep up with demand. The two largest cloud computing companies by market share, Amazon (AMZN 1.24%) and Microsoft (MSFT +1.48%), have both seen strong growth, although Microsoft's has been stronger, which has helped its stock outperform Amazon's.
As we move into 2026, let's look at which is set to outpace the other next year.
Image source: Getty Images
The case for Amazon
While Amazon is best known as an e-commerce giant, its most profitable segment is actually its cloud computing unit, Amazon Web Services (AWS). The company created the entire infrastructure-as-a-service industry nearly two decades ago to help customers scale up their computing without the high cost of building out their own infrastructure, and it remains the market share leader.
The driving force for cloud computing today is AI, as organizations use the services to create and deploy their own AI models and apps. Amazon helps customers with this process through its Bedrock and SageMaker solutions. The former provides customers with leading foundational large language models (LLMs) that they can tweak, while the latter enables them to make an AI model from scratch. Amazon also recently introduced a platform for AI agents called AgentCore, which can help customers build and deploy AI agents while monitoring them in real time. AI agents are a big opportunity for the company.
NASDAQ: AMZN
Key Data Points
While AWS has been the slowest-growing of the big three cloud computing providers (Alphabet's Google Cloud is the No. 3 player), its revenue is starting to accelerate. AWS revenue growth accelerated to 20% in Q3, and the company said it could have earned more, but it was operating at capacity. Meanwhile, AWS has more growth opportunities ahead.
Amazon just launched Project Rainier, a massive data center cluster for use by AI safety and research company Anthropic, using its custom Tranium2 chips. That project will continue to ramp up into the end of 2025. Meanwhile, it also signed a $38 billion deal with OpenAI to provide it with computing power using its UltraServers equipped with Nvidia (NVDA +1.50%) graphics processing units (GPUs). Amazon also raised its capex this year to a whopping $125 billion and said it would be significantly higher in 2026 in response to demand.
As for its e-commerce business, Amazon has been using AI and robots to drive strong operating leverage in the business. It's also seeing strong growth from its high-gross-margin sponsored ad business.
The case for Microsoft
Microsoft's Azure has been the fastest-growing of the big three cloud computing companies, with its revenue soaring 40% last quarter. It was the ninth consecutive quarter that Azure revenue has grown by 30% or more. Like AWS, Azure has also been running into capacity constraints, and as a result, Microsoft is spending aggressively to build out its data center infrastructure.
Microsoft's advantage in cloud computing has always been its relationship with and investment in OpenAI, which has given it privileged access to its leading ChatGPT AI models. The two companies finalized a new agreement earlier this year that will give Microsoft an approximately 27% stake in the company and exclusive intellectual property rights and privileged application programming interface access to its AI models through 2032. OpenAI also agreed to spend another $250 billion with Azure in the coming years, which should be a nice growth driver.
NASDAQ: MSFT
Key Data Points
The deal with OpenAI is not the only big deal Microsoft has struck recently. Together with Nvidia, it formed a partnership with Anthropic, which will commit to $30 billion of compute capacity from Azure and an additional 1 gigawatt of compute capacity, which tends to be worth around $50 billion.
Microsoft's other businesses have been seeing solid growth, helped by increasing adoption of its AI solutions. Its productivity and business processes segment, where Microsoft 365 resides, saw revenue growth jump 17% last quarter, while its "intelligent cloud" segment, which includes Azure, climbed 28% year over year.
The verdict
I think both Amazon and Microsoft will perform well in 2026, as demand for cloud computing remains strong. However, I give the edge to Amazon because I think it has more of an opportunity to accelerate growth at AWS, which has been lagging Azure and Google Cloud. That would help change the narrative on the stock and be a big boost.
I also think Amazon's e-commerce business could get a lift if the economy shows signs of improving due to lowered interest rates or a rollback of tariffs. That combination makes it a stock to buy heading into 2026.
