Amazon and Alphabet Defy Capex Fears with Robust Cloud Economics
Despite concerns over high capital expenditure (capex), Alphabet and Amazon are strong investment opportunities. Both companies have robust cloud economics, with rapid payback periods on AI infrastructure investments. Their demand outstrips capacity, and they get very strong returns on their investments.
Amazon's AWS backlog is $496 billion, while Alphabet's is $514 billion. The tech giants plan to spend about $220 billion and up to $205 billion in capex this year, respectively. However, they expect to remain capacity-constrained in 2027 and have massive demand for 2028.
Amazon's custom chips provide a competitive advantage in price performance, supporting long-term growth in its cloud business. The company also remains the leader in e-commerce, with solid revenue growth and operating leverage from investments in robots, AI, and digital marketing.
Alphabet's TPUs and Gemini models give it great cloud economics. Its custom AI accelerator business is twice the size of the next largest hyperscaler, offering 2 times better inference per dollar and a significant advantage over competitors.