1 Hyperscaler Stock to Buy, 1 to Hold, and 1 to Avoid

Hyperscalers, which are companies that own large data centers, have been spending aggressively to build out artificial intelligence (AI) infrastructure. Although the market has been concerned about this spending, the economics for things like cloud computing are quite good.

Amazon (NASDAQ: AMZN), for example, recently came out and said that it gets a payback on its AI chip and networking spending within two to three years, while SpaceX (NASDAQ: SPCX) has said it can get its money back within a year. Against that backdrop, let's look at one hyperscaler stock to buy, one to hold, and one to avoid.

Buy Amazon

Amazon is the world's largest cloud computing company, having invented the entire infrastructure-as-a-service concept. Today, it remains the market share leader and has been seeing accelerating growth, backed by partnerships with OpenAI and Anthropic, in which it holds about a 20% stake.

The company also has a strong proprietary custom-chip business, including its Trainium AI accelerators and Graviton central processing units (CPUs).

This is a fast-growing $25 billion annual recurring revenue (ARR) business that also helps it significantly reduce internal build costs and saves it money on inference. This is a big advantage that should become more important in the future.

Other parts of Amazon's business are often overlooked as well. It is the world's largest manufacturer and operator of robots and one of the largest digital advertisers. These two businesses are also helping drive strong operating leverage in its e-commerce segment.

Between its cloud computing growth, e-commerce strength, and large stake in Anthropic, Amazon stock is a buy.

Image source: Getty Images.

Hold Microsoft

Microsoft (NASDAQ: MSFT) has been one of the most beleaguered stocks in the cloud computing sphere amid concerns about its over its heavy reliance on OpenAI, lack of internal AI models and chips, and the fear that AI could undermine its core software business. However, after yet another strong earnings report, it looks like it may finally have brushed aside those issues.

Now, to be fair, the company still needs to catch up with its own AI, but it has started to make progress, and its investment and privileged partnership with OpenAI does give it time. The company still has huge commitments from OpenAI that should help power its cloud computing growth for years to come, while it has also shown that its software-as-a-service (SaaS) business remains sticky and is a primary way for enterprises to deploy AI.

Microsoft should continue to play a big role in AI over the long term, and it looks like a solid stock to continue to hold even after its big post-earnings run.

Avoid SpaceX

SpaceX is a lot of things, and cloud computing is becoming a bigger part of its story. It has a solid opportunity to grow in this area, while its ambitions to put data centers in space could become a game changer. However, it will have to overcome some major technical hurdles first, including protecting chips from cosmic radiation and developing a cooling system that works in the vacuum of space.

Meanwhile, the company's cloud unit appears to be overearning at this time. The company said it is getting paybacks as quickly as one year, but the reason behind this appears to be that it is getting strong pricing as a provider of bridge computing capacity. For example, Alphabet decided to unload some of its AI workloads to SpaceX at high prices rather than lose the business. This type of pricing is likely not sustainable over the long term, and with the company pledging to exclusively use Nvidia chips, it is at a cost disadvantage.

With SpaceX trading at a mind-blowing forward price-to-sales (P/S) ratio of 39 times 2026 analyst estimates, this is a stock I'd avoid. For reference, note that in its early days, Elon Musk's other company, Tesla, generally traded at a trailing P/S ratio of 10 to 12 times, so SpaceX is getting a huge valuation premium compared to his other stock.

Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.