Many software and technology stocks have taken a beating in early 2026. As investors reassess the massive capital expenditures required for artificial intelligence (AI) infrastructure, they are punishing companies that carry premium valuations and heavy investment cycles. Shares of Microsoft (MSFT 1.21%) have fallen about 17% year to date as of this writing. And Amazon (AMZN 1.19%) stock has also been slammed, declining more than 9% over the same period.
Interestingly, however, both companies' quarterly updates this year showed impressive growth. And, if anything, AI seemed to be a tailwind for both businesses -- not a headwind. So, is this a buying opportunity? And, if it is, which of the two stocks is a better buy?
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Microsoft: massive demand and massive costs
Microsoft's underlying business is still putting up spectacular numbers. In its fiscal second quarter, the software giant's revenue rose 17% year over year. This growth was largely driven by its intelligent cloud segment, where "Azure and other cloud services" revenue climbed 39% during the period.
But the most telling signal of AI demand is the company's backlog.
Microsoft's commercial remaining performance obligations (RPO) -- the dollar value of contracted commercial work not yet recognized as revenue -- hit $625 billion in fiscal Q2.
That figure represents a 110% year-over-year increase.
There are, however, a few reasons for investors to be cautious.
First, 45% of Microsoft's commercial backlog comes from a single customer: OpenAI. This creates a significant customer concentration risk for a business of this scale.
Second, securing this growth is proving incredibly expensive. Microsoft's fiscal second-quarter capital expenditures were $37.5 billion -- up 66% year over year. This is a massive absolute outlay that will eventually show up as depreciation and could weigh on margins over time.
Amazon: an accelerating cloud engine
Amazon is also spending heavily. Management anticipates capital expenditures of about $200 billion in 2026.
"With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites," Amazon CEO Andy Jassy explained in the company's fourth-quarter earnings release, "we expect to invest about $200 billion in capital expenditures across Amazon in 2026, and anticipate strong long-term return on invested capital."
But unlike Microsoft, Amazon is already seeing its cloud growth rate accelerate. Amazon Web Services (AWS) -- the company's cloud-computing business -- saw revenue rise 24% year over year in the fourth quarter to $35.6 billion. That pace is notably up from 20% growth in the prior quarter.
And this top-line momentum is flowing through to the bottom line. Amazon reported fourth-quarter operating income of $25.0 billion, up from $21.2 billion a year earlier.
Beyond the cloud, the company's sprawling e-commerce operation and a fast-growing advertising business also enhance the business, helping push overall net sales up 14% year over year to $213.4 billion.
Further, Amazon's approach to AI hardware could also be a long-term advantage. The company is aggressively scaling its custom silicon to lower customer costs (a very Amazon-like thing to do). Combining its Trainium and Graviton chips, Amazon now boasts a chip business with an annual revenue run rate of over $10 billion.
The better buy
To me, Amazon looks like the clear winner when comparing the two.
Both stocks trade at similar valuations. As of this writing, Amazon's price-to-earnings ratio is about 29, while Microsoft sits at about 25.
But one business's profit margins are arguably more resilient over the long haul.
Software investors are accustomed to Microsoft's sky-high profit margins. If the AI era turns cloud computing into a capital-intensive race to the bottom on price, Microsoft has a long way to fall. Its valuation leaves little room for error if those heavy infrastructure investments begin to erode profitability.
Amazon, on the other hand, operates with a retailer's mindset. It is inherently a lower-margin, high-volume operator whose business model is structurally built to endure pricing pressure. The company is already focused on driving down the cost of AI compute, making it well-positioned to compete on price without breaking its economic model. With AWS accelerating and a proven tolerance for capital-intensive growth, I believe Amazon stock offers investors a safer risk-reward trade-off today.
