Amazon Web Services accelerated to 37% revenue growth in the third quarter, outpacing Microsoft's revenue growth for the first time in recent history.
Both companies are spending hundreds of billions to build cloud capacity for AI workloads, but Amazon's faster operating profit growth—fueled by AWS's higher-margin profile—gives it an edge in capturing AI infrastructure demand that analysts expect to continue expanding.
What happened
Amazon Web Services posted 37% revenue growth in the third quarter, up from roughly 20% in prior years, outpacing Microsoft's recent revenue growth rate for the first time in a while. Both companies are investing hundreds of billions of dollars to expand cloud capacity as AI workloads surge.
Why it matters
AWS's acceleration signals that Amazon is capturing more of the AI infrastructure spend than Microsoft, despite Microsoft's heavy investment in OpenAI. For investors comparing the two cloud giants, Amazon's operating profit growth now exceeds Microsoft's, largely because AWS has higher margins than Amazon's core commerce business.
What to watch
Amazon's ability to sustain AWS growth momentum in coming quarters. The article notes this may be only the beginning of AI-driven cloud spending, suggesting AWS could maintain its lead over Microsoft in the near term.
Amazon and Microsoft stand as two of the world's largest companies and major AI players, yet both have chosen a similar strategy: integrate AI into their own products while licensing models from external providers rather than developing proprietary AI systems. Both also operate thriving cloud businesses that are benefiting from surging AI workloads.
Historically, Microsoft has enjoyed faster overall revenue growth than Amazon, but that dynamic shifted in the most recent quarter. Amazon Web Services posted 37% revenue growth in the third quarter, a dramatic acceleration from the roughly 20% growth it had delivered for several years prior. This jump is attributed directly to accelerating AI spending and cloud computing growth tied to that spending. The article suggests this may represent only the start of AI-driven cloud infrastructure demand, implying AWS could sustain its growth advantage.
Both companies are investing heavily to meet this demand: each is spending hundreds of billions of dollars to expand cloud capacity. Beyond raw revenue growth, Amazon also leads in operating profit growth—a metric the analysis prefers because it excludes gains from both companies' investments in private AI firms (Microsoft's stake in OpenAI and Amazon's investment in Anthropic). AWS's higher-margin profile compared to Amazon's base commerce business widens this operating profit advantage.
On valuation, the picture is mixed. Microsoft stock appears cheaper when measured by operating profit multiple, though the analysis notes this discount reflects Amazon's faster growth and justifies a premium valuation. When examining forward earnings projections—which filter out past gains from rising AI investments—Amazon actually looks cheaper. The article concludes that Amazon's superior operating profit growth rate gives it more near-term upside, though it notes that Microsoft remains "a great investment with plenty of upside" and advises against selling Microsoft shares.
Both Amazon and Microsoft have built diversified, defensible business models that span software, hardware, and cloud services. Microsoft dominates productivity software and gaming, while Amazon leads e-commerce, yet each maintains a "rock-solid" cloud business. The critical shift highlighted in this analysis is AWS's dramatic acceleration in growth. For years, Microsoft's revenue expanded faster than Amazon's overall, but AWS's third-quarter performance—growing at 37% after years in the 20% range—has reversed that dynamic. This acceleration is framed as a response to the surge in AI infrastructure spending, suggesting AWS's jump reflects genuine demand rather than a temporary spike. The article argues that operating profit growth, not just revenue growth, matters most because it strips away noise from both companies' private AI investments (Microsoft in OpenAI, Amazon in Anthropic). By this metric, Amazon's lead "opens up" due to AWS's higher margins, making it the clear winner in growth trajectory. Valuation tells a mixed story: Microsoft trades at a lower operating profit multiple, which the analysis acknowledges is justified given Amazon's faster growth premium. On forward earnings, Amazon becomes the cheaper option once accounting for its profit growth advantage.
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