Microsoft vs. Amazon: Which AI Stock Is the Better Buy?
Key Points
Amazon has outperformed Microsoft and other top artificial intelligence (AI) stocks year to date.
Only 3% of Microsoft’s commercial Office customers are paying for Copilot AI licenses.
Amazon recently reported a $15 billion annual revenue run rate for its AWS AI services.
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Not every artificial intelligence (AI) stock is a long-term winner. During the past five years, Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) have both underperformed the S&P 500 (SNPINDEX: ^GSPC). Amazon gained 52% and Microsoft rose 68%, while the S&P 500 increased 71% during that timeframe.
And if you look at more recent performance, these two AI stocks are heading in different directions. Microsoft shares have declined about 12% year to date, while Amazon has gained 14%. Amazon has also outperformed other leading AI stocks like Nvidia and Alphabet so far this year.
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AMZN data by YCharts
Both companies are due to report earnings on Wednesday, April 29. But as of this writing, I rate Amazon the better buy than Microsoft. Here are a few reasons.
Amazon: AI capital expenditures spending might be paying off
One big reason to invest in Amazon as an AI stock is that the company seems to already be achieving significant returns on its big investments in AI capital expenditures (capex). In his shareholder letter on April 9, Amazon Chief Executive Officer Andy Jassy wrote a response to three big questions that investors have about AI.
Image source: Getty Images.
These questions were:
- Whether AI is overhyped
- Is AI a bubble
- If future AI profit margins and return on invested capital are worth pursuing.
Jassy wrote, "My strong conviction, at least for Amazon, is that the answers are no, no, and yes."
Even though Amazon is on track to spend $200 billion in capex this year, the company's AI investments might already be starting to pay off. Customers are using Amazon Web Services (AWS) for AI services like custom chips, model-building, inference, and turnkey agents. On Friday, Amazon announced that Meta Platforms had agreed to a multibillion-dollar deal to get access to Amazon's Graviton line of chips.
Compared with some other AI companies that are making expensive bets on products that aren't profitable yet, Amazon appears to have a clearer path to make money from AI. Jassy's letter said that AWS AI services achieved a $15 billion annual revenue run rate in the 2026 first quarter. That's about 260 times larger than AWS's revenue at the same point in the first three years after its launch.
Amazon seems to have strong momentum in making money from AI. This tech stock's future looks bright.
Microsoft: Falling behind other AI stocks
One big challenge for Microsoft investors in recent months is that the company seems to be a laggard in the AI race. The company's AI investments are also tied closely to its strategic partnership with OpenAI -- which is getting complicated.
Microsoft has been an investor in OpenAI since 2019 and has a revenue sharing arrangement with the developer of ChatGPT. Microsoft gained $7.58 billion of revenue from its OpenAI investments in the latest reported quarter (as of Dec. 31), which was about 9.3% of its total quarterly revenue of $81.3 billion.
But the two companies are now competing in some areas. And Microsoft's much-touted Copilot AI tools (powered by OpenAI's ChatGPT) seem to be struggling to gain traction. A recent report from CNBC said that only 3% of the company's commercial Office customers have bought licenses for the Microsoft 365 Copilot AI add-on.
Did Microsoft bet on the wrong horse in the AI race? People don't seem to love Copilot. That could make it harder for the company to keep up with AI product competitors like Google Gemini and Anthropic Claude.
Microsoft still has powerful strengths that could help the company pull out of its slump. According to its most recent quarterly earnings report, Microsoft Cloud revenue increased 26% year over year, with a 39% increase in revenue for Azure and other cloud services.
Microsoft has a price-to-earnings (P/E) ratio of 26.6, while Amazon has a P/E of 36.8. Some investors might think that means Microsoft is cheap compared to Amazon. But based on some recent news and trends, Amazon seems to have a stronger AI stock growth story for the future. Unless there's a big surprise on April 29 when both companies report earnings, I rate Amazon as the better buy.
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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