The fourth-quarter earnings season was another one marked by explosive growth and record profits for the top hyperscalers globally: Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL). But who exactly came out on top when delivering for shareholders? Strong results weren’t enough to satisfy all market participants, as shares of these three Big Tech giants took a hit after the market digested each report.
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Stock price performance comparison between Amazon, Microsoft and Google over the past 3 months
While I’m still bullish on all these tech juggernauts, as each is well-positioned to take advantage of the secular tailwinds from the massive demand for AI cloud services, this earnings season showed a slowdown or stabilization in growth rates for the trio, with claims of a lack of capacity to meet rising demand. Looking closer, it seems that despite holding the largest share of the cloud market, Amazon continues to maintain steady growth rates.
Even with fluctuating margins, Amazon appears ahead in capitalizing on cloud growth while maintaining strong profitability. Additionally, the company plans to spend a much smaller percentage of its revenues on AI infrastructure by 2025 compared to its peers, which some might view as an advantage as investors worry about whether these investments are fully justified.
Since Amazon, under CEO Andy Jassy, shifted its focus to high-margin services, AWS has become the company’s most important business unit. AWS is not only the leader in the cloud market, with ~32% of the global share, but it also posted an impressive operating profit margin of 37% in Q4. Plus, sales growth has stayed at 19% for the past three quarters.
Maintaining market leadership is challenging, especially while keeping margins strong. As a result, AWS’s operating margins have seen some ups and downs, reaching 38% in Q3 and 35% in Q2. However, Amazon’s management says this margin fluctuation is a natural part of the company’s heavy investments in AI infrastructure, which can lead to higher depreciation expenses and ultimately impact operating profits. In 2024, Amazon spent $77.6 billion on capex, a 61% increase from 2023.
Analysts expect Amazon’s revenue to hit $699 billion in 2025, making capex around 14% of total revenue. So, we’re likely to see even more growth in 2025, but the big question will be how long Amazon can maintain those high operating margins.
On Wall Street, AMZN stock carries a Strong Buy consensus rating based on 47 Buy, one Hold, and zero Sell ratings over the past three months. AMZN’s average price target of $268.91 per share implies a 16% upside potential compared to current prices.
Amazon (AMZN) stock forecast for the next 12 months including a high, average, and low price target
Microsoft’s Azure, now the second-largest cloud provider globally, holds about 24% of the cloud market. Since CEO Satya Nadella took over, the company has capitalized on cloud growth by integrating its productivity and business services while moving away from irregular software license sales. In FYQ2, the Intelligent Cloud business grew by 19% year-over-year, showing some deceleration compared to FYQ1, when revenues grew by 20%.
Specifically, Azure and other cloud services saw a 31% year-over-year revenue growth. However, this also marked a slowdown compared to 34% growth in Q1 2025 and 35% in Q4 2024, bringing growth back to levels seen in Q1 2024.
Despite the slower growth in cloud in FYQ2, the real concern for investors came from the Q3 growth guidance, which was between 32%. This is still lower than what Microsoft reported two quarters ago. The management team explained that the slowdown is tied to capacity problems. Over the last twelve months, Microsoft has already invested $55.5 billion in capital expenditure, a 57% increase from the previous year. CEO Satya Nadella also confirmed plans to spend $80 billion on AI data centers in 2025, representing about 27% of the $293 billion in expected revenue for the next four quarters.
Currently, MSFT stock has a Strong Buy consensus rating based on 29 Buy, three Hold, and zero Sell ratings obtained over the past three months. MSFT’s average price target of $510.90 implies approximately 24% further upside over the next 12 months.
Microsoft (MSFT) stock forecast for the next 12 months including a high, average, and low price target
Alphabet’s Google Cloud, the third-largest global hyperscaler with around 12% market share, has been the fastest-growing cloud provider among the top three. It’s worth mentioning that Google Cloud was operating at a loss not long ago. However, in Q4, it generated $2.1 billion in operating income, more than double the figure from the previous year.
In Q4, Google Cloud once again reached an all-time high in revenue, hitting $11.95 billion, up 30% year-over-year. This marks the seventh straight quarter of growth. However, the downside this time was that growth rates slowed. For example, in Q3, Google Cloud revenue was $11.4 billion, up 35% year-over-year.
The management team’s comments were similar to those of Amazon and Microsoft. They explained that the Q4 slowdown wasn’t due to a lack of demand but capacity issues. On the bright side, unlike its main competitors, Google Cloud saw a noticeable improvement in operating margins, which rose to 18.8% in Q4, a significant jump from 11.3% in Q3.
With supply being the key issue for future growth, Alphabet is pushing ahead with heavy investments in AI infrastructure. The company spent $52.5 billion on capex in 2024, a 62% increase from the previous year, and plans to spend $75 billion more in 2025. That would be about 19% of the $390 billion expected revenue analysts forecast for Alphabet in 2025.
Wall Street is also bullish on Alphabet, though somewhat more cautiously. The consensus is that GOOGL stock is a Moderate Buy, with 27 out of 37 analysts rating it a Buy. The other ten analysts rate it a Hold. GOOGL’s average price target of $215.85 implies an upside potential of 15% from current levels.
Alphabet (GOOGL) stock forecast for the next 12 months including a high, average, and low price target
Aside from Amazon, Microsoft and Alphabet struggled to maintain growth rates in their cloud businesses in Q4. The general explanation was that slower-than-expected growth was due to capacity issues, not a lack of demand. So, ongoing investments in AI infrastructure seem to be well justified as we zoom into 2025.
With this in mind, even though Amazon’s AWS operating margins have been volatile, I believe Amazon has found the best balance between growing at tough rates and maintaining top-tier margins despite being the market leader. Meanwhile, Alphabet’s Google Cloud is still in its early stages, focusing on boosting margins, and Microsoft has struggled to accelerate cloud growth over the past few quarters.
Amazon won the Q4 earnings season contest between these tech titans, and of the three, it remains the best stock to invest in within the cloud space.
