Cloud Computing Stocks Soar as Investors Realize Lucrative Business Model

The big three cloud computing providers - Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) - have seen their stocks lag behind during the AI bull market. However, a recent commentary from Amazon CEO Andy Jassy may have convinced investors of the lucrative business model for these companies.

Jassy explained that Amazon breaks even on its AI chip and networking investments in two to three years, with a useful life of between five and six years. Most of its AI capacity is contracted out for at least five-year terms, and returns are generally better over time due to the long lifespan of actual data centers.

With this understanding, all three cloud computing stocks look like buys right now. Let's take a closer look at each.

Amazon is the largest cloud provider in the world today, with its AWS unit showing strong growth. In Q2, AWS revenue surged 37%, and operating income skyrocketed 63% to $16.6 billion. Amazon has a cost advantage with its custom chips and sells them to customers, generating a $25 billion revenue run-rate business.

Microsofthas been growing consistently, with Azure revenue increasing by 30% or more each quarter over the past three years. It expects Azure revenue to accelerate to 45% growth next quarter, with a large backlog of $678 billion.