Amazon (AMZN -0.94%), Alphabet (GOOG -0.12%) (GOOGL -0.13%), and Microsoft (MSFT -0.30%) are the world's three biggest cloud computing providers. They are spending a ton of money on adding more computing capacity this year, with Amazon leading the way, on track to spend $220 billion, Alphabet expecting to spend about $200 billion, and Microsoft forecasting spending of $175 billion. Added up, that's $595 billion. That's a huge amount of money being spent on data centers, which showcases just how important the cloud business is to these three.
However, all of that money has to go somewhere, and I think there's one clear winner from that spending that investors can point to.
Image source: Getty Images.
It makes sense for the cloud providers to spend this much
The cloud computing infrastructure space is experiencing surging revenues due to the artificial intelligence (AI) trend, as most companies lack the in-house computing capacity to run their AI models and applications. Instead, they turn to cloud computing providers such as Amazon Web Services (AWS), Microsoft Azure, or Google Cloud to handle those demands. This works well for both parties in the transaction; cloud providers generate income from leasing their computing assets, while their clients stay asset-light and don't have to worry about maintaining complex data centers.
NASDAQ: GOOGL
Key Data Points
Demand for cloud computing has exploded in the past few years, and the providers don't have nearly enough capacity to meet it. During Amazon's last conference call, CEO Andy Jassy said that there will not be enough capacity available to meet demand in 2026, and asserted that 2027 is shaping up to be the same way. As a result, contracts for capacity that won't be available until 2028 are already starting to appear. Considering the massive backlogs of cloud business that Google Cloud and Azure have, this likely applies to them, too.
All three cloud computing divisions put up incredible revenue growth rates in the past quarter, with Google Cloud rising 82%, Azure increasing 43%, and AWS rising 37%. Growth rates like that warrant major reinvestment, which is why the companies are spending nearly $600 billion combined in capital expenditures this year.
NASDAQ: AMZN
Key Data Points
So, what company benefits the most from this? That's easy. It's Taiwan Semiconductor (TSM -0.96%).
All of the chips have to come from somewhere
It takes numerous types of computing hardware to make a data center work. The way the industry has shifted is that most companies that design the chips and processors that go into servers don't actually fabricate them, and that is true for the heart of every computing device in the data center: the logic chip. Logic chips are where companies can develop competitive advantages. By contrast, memory chips are essentially commoditized -- there's little that sets one company's designs apart from those of its peers.
The leading logic chip manufacturer is Taiwan Semiconductor, and it is the only company with sufficient capacity to manufacture all the chips needed in the AI computing realm. TSMC boasts nearly every major company in the AI chip space as a client, and its technology and capabilities are second to none.
NYSE: TSM
Key Data Points
So, as the cloud computing providers announce increased capex budgets, your mind should immediately drift to one place: Taiwan Semiconductor. Regardless of which computing units these companies are deploying, the majority of those chips will likely come from TSMC's foundries. With the AI build-out expected to continue through at least the end of the decade, there's also plenty of room for growth. Lastly, TSMC is down around 10% from its all-time high, making now a great time to buy shares.
There are few companies that are benefiting as broadly from the AI buildup as Taiwan Semiconductor is. If you want wide-ranging exposure to the AI build-out, then TSMC is a great investment.
