AI companies have already shoveled hundreds of billions of dollars into capital expenditures (capex) this year, and spending could surpass $1.3 trillion in 2027, according to S&P Global. The justification for the spending by many tech companies is that they are trying to position themselves as AI leaders, and by opening up their wallets, they hope to ensure they won’t be left behind.
But not every AI model, fancy new AI agent, or other AI-infused technology will generate substantial revenue, let alone make a profit. That’s why investors are right to be skeptical of much of the AI spending happening right now.
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Not all of it is a waste, though. Some companies are already seeing a return on their investment, such as Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN). And both companies will likely benefit from the boom in AI cloud computing for years to come. Here’s how.
Why Amazon’s $220 billion AI spend could pay off
Amazon’s leadership increased the company’s capital expenditures (capex) to $220 billion this year, with most of it going to AI.
How could that massive amount be even remotely close to a good investment? Because Amazon is the leading cloud computing company with 28% of the market, according to Synergy Research Group, and companies of all shapes and sizes pay for its Amazon Web Services (AWS) for their cloud computing needs.
And business is booming. AWS now has an annualized revenue run rate of $169 billion, and Amazon CEO Andy Jassy recently said he expects it to reach $600 billion a decade from now.
If Amazon reaches anywhere near that goal, its current spending spree could be well worth the investment. What’s more, AWS is a highly profitable part of Amazon’s business, with $16.6 billion in operating income and an operating margin of more than 39%.
For investors looking for proof of revenue and earnings from AI investments, Amazon is already delivering.
Microsoft is spending $175 billion, but Azure growth is accelerating
Microsoft’s Azure cloud service is very similar to Amazon’s AWS, and it’s benefiting from the same demand for cloud services even as it ramps up capex spending to $175 billion this year.
Azure sales have an annualized revenue run rate of $100 billion — up 41% from the previous year — and they continue to accelerate. Microsoft’s management says revenue from its cloud service could increase by 45% in fiscal 2027.
