The market is really concerned about one thing right now: artificial intelligence (AI) spending. It's understandable; many of the AI hyperscalers are dumping a boatload of money into this technology, and there hasn't really been a return on investment. The market would rather see some of that money go toward proven technologies or strategies that can provide a return on capital. I think AI will provide that, but investors have to be patient.
The market isn't usually a patient entity. For the most part, each stock is judged on what it's doing in the next quarter or year, not where it's heading in five years. This mistake is an ideal investor opportunity, as this AI spending starts to make sense when you look at it from a 50-year time frame. With that in mind, I think the capital expenditure projections from Amazon (AMZN 1.52%), Alphabet (GOOG 1.68%) (GOOGL 1.66%), and Microsoft (MSFT 0.73%) are reasonable, as the opportunity is there.
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Cloud computing is the reason for all of this spending
The biggest catalyst for these three is their cloud computing businesses. At its core, cloud computing is really just a rental platform. Big tech companies like these three build out excess computing capacity, then rent it out to clients that don't have the capacity that they need. While this isn't as cost-effective for clients as building their own data center, it's also a much cheaper upfront cost. It doesn't make sense for an AI start-up to build its own data centers right out of the gate, as the technology may be a flop, and all of the money spent on hardware upfront could have allowed the company to operate for longer if it had just rented off-the-shelf power.
You're starting to see this now with OpenAI, as it used to operate exclusively on Microsoft Azure, but has since expanded and started to build its own data centers. Several AI clients may also run their workloads on cloud computing servers in perpetuity, which is why the upfront investment from Microsoft, Amazon, and Alphabet makes sense.
NASDAQ: MSFT
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Eventually, this trio will have built out all of the computing capacity that they need. Once this occurs, they will no longer have the expense of building a data center, just general upkeep and replacement of burnt-out or outdated computing hardware. At that time, the cloud computing wings of these three will turn into absolute cash cows, making them genius stocks to invest in now.
Currently, each of them is doing great, but they could get even stronger over the next five years as AI spending ramps up.
All three cloud computing firms are seeing strength
Starting with the largest, Amazon Web Services (AWS) is also growing the slowest. AWS grew at a 24% year-over-year pace during the fourth quarter -- the best in over three years. It's seeing particular strength from its in-house designed chips, which saw triple-digit revenue growth in Q4. If AWS can keep up that growth rate throughout 2026, Amazon will benefit massively as a whole.
NASDAQ: AMZN
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Moving to the fastest-growing, Google Cloud posted jaw-dropping 48% growth in Q4. One interesting point -- Google Cloud added $5.71 billion in revenue year over year. AWS added $6.79 billion in new business. So, just because Google Cloud is growing faster, it doesn't mean it's actually getting bigger than AWS. Still, it's an exciting part of Alphabet's business, and it could continue to grow rapidly thanks to Alphabet rapidly having one of the top generative AI models in Gemini.
NASDAQ: GOOGL
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Last is Microsoft Azure. Microsoft doesn't provide single-segment results, only growth rates. So, it's impossible to know how big or profitable Azure is, unlike AWS or Google Cloud. Still, Azure grew 39% year over year -- an impressive figure. Azure continues to be one of the top reasons to own Microsoft stock, and I don't think that will change anytime soon with the massive $625 billion backlog for its services.
There is a huge demand for AI computing power, and these three cloud computing providers are the primary way AI companies are getting it. I think their move to spend billions of dollars on capital expenditures is the proper thing to do, even if the market isn't a huge fan of it in the short term.
