Amazon vs. Microsoft: 1 Key Metric Identifies the Superior Artificial Intelligence (AI) Cloud Stock
Key Points
Microsoft Azure likely has a lower operating margin than Microsoft as a whole.
Amazon Web Services is boosting Amazon's overall operating margin.
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Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) are two of the largest cloud computing providers. But which one of these hyperscalers makes for the better buy? I think there's one key metric that separates the two firms, and once you recognize it, it will be hard to consider investing in the other.
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The growth rates look similar, but are they?
In terms of market share, Amazon Web Services (AWS) is the largest cloud computing provider in the world, with Microsoft Azure coming in second. That makes both firms very important, but of the two, it's pretty clear Amazon is growing at a faster pace.
At first glance, that analysis seems wrong. In their latest quarters, Azure grew by 43%, while AWS grew by 37%. But that's not what I'm talking about.
I'm looking more at the trend lines, and it's clear that AWS' growth is accelerating rapidly. During Q1, AWS's growth rate was 28%. In Q4 2025, its growth rate was 24%. Rewinding to Q3 2025, its growth rate was 20%. That's some rapid acceleration over the past year, and considering Amazon is still pouring hundreds of billions of dollars into expanding its cloud computing capacity, I won't be surprised to see AWS' growth rate continue to accelerate over the next few quarters.
Microsoft Azure's growth rate has remained fairly constant, despite being rapid. While it grew Azure revenue by 43% during the company's fiscal 2026 Q4 (which ended June 30), its fiscal Q3 growth rate was 40%. In fiscal Q2 and fiscal Q1, it was 39% and 40%, respectively. That's not much growth acceleration, especially considering how much money Microsoft has been laying out on capital expenditures for this division.
So, even though Amazon is technically growing more slowly than Microsoft, I still think its cloud computing business is more attractive because its revenue growth rate is rapidly accelerating. I expect this trend will continue, knowing there's even more growth ahead coming from the infrastructure investments it's making.
I think this key point makes Amazon a better investment than Microsoft, but there's still one more factor to consider.
AWS' operating margin is comparatively impressive
Unfortunately for investors, Microsoft doesn't break out individual segments' operating margins in its public reports, just revenue growth. However, based on other cloud computing firms' operating margins, Azure's is likely slightly less than Microsoft's as a whole.
MSFT Operating Margin (Quarterly) data by YCharts.
During Q2, AWS' operating margin was 39%. So, if Azure grows faster than any other part of Microsoft's business, it will be a drag on Microsoft's results and cause profits to grow slower than revenue.
The opposite is true for Amazon.
Amazon's other core business, e-commerce, has notoriously low operating margins.
AMZN Operating Margin (Quarterly) data by YCharts.
As AWS grows faster than Amazon's other businesses, Amazon's profits will grow faster than companywide revenue. So, with AWS's growth rate accelerating, companywide profits are also expected to increase rapidly. This is a great setup for the stock to deliver incredible returns over the next few years, and makes Amazon by far the better stock to buy over Microsoft.
The key factor is that AWS' growth boosts Amazon's profits, while Azure is a relative drag on Microsoft's. With each company investing hundreds of billions of dollars into new computing capacity, it makes sense for investors to back the stock that will see greater profit growth rather than the one that will see shrinking profits for each dollar brought in.
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Keithen Drury has positions in Amazon and Microsoft. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool has a disclosure policy.
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