Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are significantly expanding their investments in data centers, driven by the booming demand for cloud computing and artificial intelligence (AI) services. For 2026, Amazon plans to spend approximately $220 billion on capital expenditures, while Alphabet expects to allocate around $200 billion, with nearly all of these funds going toward building out data centers.
Amazon Web Services (AWS) is a critical component of Amazon's overall business strategy. In Q2, AWS accounted for about 21% of Amazon's total revenue but generated 60% of its operating profits. This high-margin business amplifies the impact of revenue growth on Amazon's overall profitability. Amazon's net sales rose 20% year over year in Q2, but its operating income increased by 43%, highlighting the significance of AWS' contribution.
Alphabet is also benefiting from the rapid growth of Google Cloud, which had an 82% year-over-year revenue growth in Q2, compared to AWS' 37% growth. However, Google Cloud's operating margin is slightly higher at 36%, but it doesn't have the same outsized effect on Alphabet's bottom line as AWS does on Amazon's. As of Q2, Amazon remains the world's largest cloud infrastructure provider with a 28% market share, while Alphabet holds 15% of the market.
Both Amazon and Alphabet trade at similar valuations based on their operating P/E ratios, making it challenging to choose one over the other solely on valuation. The decision ultimately comes down to whether an investor prefers raw revenue growth or outsize profit growth. While Amazon is favored for its profit potential, Alphabet's rapid expansion in the cloud segment makes it a strong investment as well.