Amazon, Alphabet Outpace Microsoft as Cloud Computing Arms Race Heats Up

The big three hyperscalers in cloud computing - Amazon (AMZN), Alphabet (GOOG)(GOOGL), and Microsoft (MSFT) - are accelerating their growth rates, but one of them stands out from the rest.

Alphabet's Google Cloud is growing at an impressive 82% year-over-year, with its operating margin rising to 36% in Q2. This growth rate is not only rapid but also accelerating, with a 63% growth rate in Q1 and expected to cross triple digits over the next few quarters.

AWS (Amazon Web Services) and Microsoft Azure are closer in their growth rates, but there's a glaring defect in Microsoft's results. AWS' growth rate is rapidly accelerating, while Azure's growth rate is stagnating at 40% year-over-year.

Valuing these companies can be tricky due to their massive investments in up-and-coming AI companies, which skew their earnings-per-share (EPS) metric. From a valuation standpoint, Microsoft is the cheapest of the three, but its stagnant growth rate makes it the odd stock out.