Amazon and Alphabet Dominate in Accelerating Cloud Growth

The three largest cloud computing providers are Amazon (AMZN), Alphabet (GOOG and GOOGL), and Microsoft (MSFT). These companies command a massive two-thirds market share combined, but not all of them make for smart buys right now. The incredible AI workload demand is driving the growth of these companies. Few companies have the computing power necessary to train and run AI models, so they rent computing capacity from one of the three major cloud computing providers.

The reason AWS (Amazon Web Services) has a larger market share but slower growth rate than Alphabet's Google Cloud is that it is the slowest-growing of the three. In the second quarter, AWS revenue rose 37% year over year, which marks a significant acceleration from last year's low 20% range.

Alphabet's Google Cloud, on the other hand, has had the most impressive performance of the three, with its Q2 revenue rising 82% year over year and an operating margin of 36%. However, Microsoft Azure is not growing at the same rate as AWS or Alphabet's Google Cloud, despite a 43% growth pace.

The reason for avoiding Microsoft is not only because of Azure's lackluster performance but also because its overall profits are growing more slowly. As a result, Amazon and Alphabet look like far better investments than Microsoft right now.