Where Cloud Giants Are Finding Their Next Growth Engine: AI Stocks Worth Watching

The artificial intelligence boom has created a paradox for stock investors. Many pure-play AI companies struggle with profitability, questionable valuations, or heavy dependence on single revenue streams. Yet some of the most intriguing AI growth opportunities are sitting right in front of us—embedded within the infrastructure and services we already use daily.

Two tech titans stand out in this landscape: Amazon and Microsoft. Both are positioned not just as AI participants, but as the architects building the backbone that powers the entire AI ecosystem.

The Cloud Computing Revolution: Where the Real AI Money Is

When people discuss Amazon stock, e-commerce usually dominates the conversation. But here’s what matters for growth investors: Amazon Web Services (AWS) has become the company’s financial engine.

Consider the numbers from Amazon’s latest earnings. Total revenue climbed 13% year-over-year to $180.2 billion, but AWS—the cloud division—surged 20.2% to $33.0 billion. This acceleration is significant compared to Q2’s 17.5% growth rate. More importantly, AWS generated $11.4 billion in operating income, accounting for 66% of Amazon’s total operating profit.

CEO Andy Jassy emphasized that AI isn’t confined to AWS alone. “We continue to see strong momentum and growth across Amazon as AI drives meaningful improvements in every corner of our business,” he stated in the earnings call. This suggests the AI boost is systemwide, from logistics optimization to retail personalization.

But there’s a catch: this growth requires substantial capital investment. Operating cash flow rose 16% to $130.7 billion over the past year, yet free cash flow actually declined to $14.8 billion from $47.7 billion annually. The culprit? A massive $50.9 billion year-over-year jump in capital expenditures, primarily flowing into data centers and compute infrastructure. That’s the price of staying ahead in the AI race.

Microsoft’s Cloud Acceleration: Azure’s Impressive Momentum

Microsoft is following a similar playbook with Azure, its cloud services equivalent to AWS. The company is embedding AI across Office, Teams, Outlook, and other core products—tools millions use daily.

The growth metrics are noteworthy. In fiscal Q1 2026, Microsoft’s total revenue hit $77.7 billion (18% growth), while operating income jumped 24% to $38.0 billion. But the standout number is Azure’s performance: cloud services revenue climbed 40% year-over-year, accelerating from 39% in the prior quarter.

This trajectory suggests sustained momentum ahead. Microsoft’s commercial remaining performance obligations (RPO)—essentially committed future revenue—reached over $400 billion, up 50% year-over-year. This metric often signals strong demand visibility.

Like Amazon, Microsoft is betting big on infrastructure. Capital expenditures in Q1 hit $34.9 billion, with management signaling sequential increases throughout the fiscal year. “Growing demand for our cloud and AI offerings” is driving these expenditures, the company stated. Management expects full-year capex growth to outpace fiscal 2025 levels.

The Investment Case: Growth Embedded in Scale

Why do both these AI stocks merit serious consideration? The investment thesis is straightforward: both companies operate large, profitable core businesses. AI represents an additional value layer—a capability superimposed onto existing operations that accelerates already-strong growth trajectories.

However, this opportunity isn’t without risks. Building AI infrastructure is capital-intensive and expensive. Management must execute flawlessly to ensure the massive spending delivers promised returns. If AI investments underperform expectations, shareholder value could suffer.

Valuation is another consideration. Amazon and Microsoft trade at forward price-to-earnings ratios of 29 and 30, respectively—premium valuations that leave little room for disappointment. Investors holding these positions might want to keep portfolio allocation modest, given both the elevated valuations and the execution risk tied to their substantial capex commitments.

The Bottom Line

Despite the cautionary notes, there’s a compelling case that both Amazon and Microsoft’s aggressive infrastructure investments will pay dividends. If these bets yield the expected returns, the companies could accelerate earnings growth substantially—potentially rewarding patient, long-term investors handsomely over the coming years.

The key question for investors isn’t whether AI matters—it clearly does. Rather, it’s whether these two established giants can successfully scale their AI capabilities while maintaining profitability. Early evidence suggests they can, making them worth serious consideration for growth-oriented portfolios seeking exposure to the AI theme.