In the artificial intelligence (AI) investing world, the cloud computing providers are one of the primary beneficiaries. These are the companies spending hundreds of billions of dollars on data centers purpose-built for AI computing, but expect to make all of that money back -- and more -- as the computing capacity is rented out to clients.
The big three in this realm are Amazon (AMZN -2.16%), Microsoft (MSFT -0.85%), and Alphabet (GOOG -4.33%) (GOOGL -4.18%). Each of these companies just announced results, and delivered incredible results, which shouldn't come as a surprise to anyone.
I think these are among the best stocks to buy now and hold for the next decade, even after any gains following a post-earnings pop.
Image source: Getty Images.
Each company just crushed cloud computing results
Starting with the largest, Amazon Web Services (AWS) had a very strong quarter. Wall Street analysts only expected AWS to deliver 31% growth; instead, it came in at 37%. This shows the strength of Amazon's business and how it's well-positioned to maintain its title as the largest cloud computing provider.
NASDAQ: AMZN
Key Data Points
I'd argue that Microsoft Azure posted the weakest quarter of the three, but it was still quite strong compared to most businesses. Azure's revenue rose 43%, although we don't know the revenue or profit profile of the business because Microsoft doesn't reveal the numbers for individual business units like Amazon and Alphabet do. That's faster than AWS, so why was it a worse quarter? During the previous quarter, Azure grew at 40%, so its growth rate isn't accelerating. For comparison, AWS's growth rate during Q1 was 28%.
However, Alphabet's Google Cloud trumps them all as the best-performing cloud computing business. During Q2, it posted an unbelievable 82% revenue growth rate. However, there's a catch here. While Google Cloud is doing great as a business, it's also benefiting from selling its custom AI chips to external customers and accounting for the revenue in this division. This isn't an apples-to-apples comparison to the other two, but I'd still wager that even when those results are stripped out, it's the fastest-growing of the three.
NASDAQ: GOOGL
Key Data Points
So, with AWS's growth rate accelerating and Google Cloud's as well, I think these two are the main winners. However, don't sleep on Microsoft, as it's still delivering solid results; they're just not as good as the others. Regardless, some of this is accounted for in valuations.
The stocks all look reasonably priced
All three of these companies have funky things going on with their net income metric, as they all have major gains on investments affecting them. So, instead of using the price-to-earnings ratio, I'm going to use the price-to-operating income ratio to value these three stocks.
GOOG Operating PE Ratio data by YCharts
Microsoft, the worst performer from a cloud perspective, is valued at a sizable discount to the other two. Meanwhile, Alphabet and Amazon's valuations are nearly identical, making them fairly comparable as investment options.
I think all three of these are great buys, and all for different reasons. Microsoft is the value play, and could easily turn its fortunes around, while Alphabet is the rapidly growing business taking market share. Amazon is the legacy stalwart that's seeing major acceleration and could continue to post incredible results, challenging the other two.
NASDAQ: MSFT
Key Data Points
With AI workloads only expected to grow over the next decade, these three stocks are great to buy, hold, and forget about. I think they will easily crush the market and deliver solid returns to investors. The only thing that could cause these businesses to struggle is if AI is an absolute bust, and I don't see that happening with major improvements already being seen throughout the business world.
