Amazon vs. Microsoft: Which Tech Giant Looks Better After Its Earnings Report?
Key Points
Microsoft delivered higher revenue growth and better profit margin, but the tide is shifting.
Amazon's AWS sales continue to accelerate and have almost caught up with Microsoft's current growth rates.
Amazon's high-margin businesses resulted in the company's highest net profit margin in its history, and that trend looks like it will continue.
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Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) both reported earnings on April 29. The reports continued the tale of two growth stocks heading in different directions. Amazon rallied higher on its earnings, while Microsoft slumped.
The e-commerce giant is up by roughly 20% year to date, while Microsoft has dropped by more than 10%. Both companies' earnings reports suggest that this trend is likely to continue.
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Cloud computing is the major story for both companies
Amazon and Microsoft have invested heavily in artificial intelligence (AI), and their investments have been showing up in their cloud results. Amazon Web Services (AWS) grew by 28% year over year, marking a sustained period of accelerated revenue growth. AWS sales increased by 13% in 2023, 19% in 2024, and 20% last year.
Microsoft Cloud revenue was up by 29% year over year in the third quarter (Q3) of its fiscal year 2026; that's the quarter that ended March 31. That's slightly higher than AWS' growth rate, but Microsoft Cloud revenue growth has been sitting in the low-to-mid-20% growth range for multiple years.
Amazon's cloud platform is accelerating faster while still holding more market share. The positioning, combined with faster acceleration, makes Amazon's cloud segment more promising right now.
Exploring other business segments
While cloud computing has been the major story for both companies, their cloud platforms aren't the only revenue drivers. Microsoft groups its businesses into three categories: (1) productivity and business processes, (2) intelligent cloud, and (3) more personal computing. Those segments had year-over-year growth rates of 17%, 30%, and negative 1%, respectively, in the most recent quarter. Microsoft's AI business also reached a $37 billion annual revenue run rate, which represents a 123% year-over-year improvement.
Amazon has more high-growth segments. The tech giant's high-margin advertising business grew by 24% year over year in the most recent quarter, and online store sales increased by 12%. Amazon's AI chip business also reached a $20 billion annual revenue run rate, with OpenAI and Anthropic both committing to long-term purchases.
Microsoft has smaller business segments within its three business categories. Notable ones include search advertising and LinkedIn, which both delivered low double-digit year-over-year growth rates. Xbox content and services sales dipped by 5% year over year, showing that not every key part of Microsoft's business is growing.
Both companies have delivered exceptional overall growth rates due to their AI exposure and cloud computing. However, Amazon has more avenues for long-term revenue growth that are still gaining market share.
Amazon's profits are growing at a faster rate
One weakness Amazon has historically endured compared to fellow cloud providers Microsoft and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is lower profit margins. E-commerce logistics result in low profit margins, with big-box retail giants like Walmart (NASDAQ: WMT) and Costco (NASDAQ: COST) regularly reporting low-single-digit profit margins.
Amazon followed the same script for a while, even with its growing cloud platform and online ads. However, Q1 results represented a sharp departure from that storyline, with Amazon delivering 16.7% net profit margin. Although Microsoft's 38.3% net profit margin was higher, Amazon's net profit margin was the highest in its entire history.
Most of Amazon's recent growth has come from AWS, online advertising, and AI chips. Those segments are compounding faster than lower-margin parts of Amazon's business and AWS and online ads make up a combined 30% of Amazon's total revenue.
Microsoft still delivered higher net income growth than revenue growth, but its 38.4% net profit margin is just a tad higher than its previous mark last year. Amazon's improvements in profitability, meanwhile, are seismic and make the thesis more attractive.
Amazon wrapped up Q1 with $181.5 billion in total revenue, compared to Microsoft's $82.9 billion in its quarter. Microsoft slightly edged out Amazon with net income for the quarter, but that lead can evaporate quickly as Amazon's high-margin businesses dictate the company's future results.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Costco Wholesale, Microsoft, and Walmart. The Motley Fool has a disclosure policy.
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