Cloud Giants & AI: A Patient Investor’s Game

The market, as it so often does, is currently in a bit of a fluster about artificial intelligence spending. Perfectly understandable, really. These tech behemoths – Amazon, Alphabet, Microsoft – are throwing around sums of money that would make Croesus blush, and the immediate return isn’t exactly screaming from the rooftops. Investors, naturally, would prefer to see a bit more… present gratification. It’s like planting an oak tree and expecting acorns the same afternoon. A bit optimistic, wouldn’t you say?

The problem is, the market operates on a timescale roughly equivalent to a mayfly’s lifespan. Quarterly earnings reports, year-on-year growth… it’s all very immediate. And that’s a bit of a mistake, if you ask me. This AI investment, viewed through a slightly longer lens – say, fifty years, which is roughly the lifespan of a particularly resilient Galapagos tortoise – starts to look rather sensible. And when I say sensible, I mean potentially very profitable. The opportunity is there, absolutely, but it demands a touch of patience. A commodity in short supply these days, I’ve noticed.

The Cloud: It’s Just Someone Else’s Computer

The driving force behind all this expenditure is, unsurprisingly, cloud computing. It’s a deceptively simple concept, really. Think of it as renting computing power instead of owning it. These companies build massive data centers – warehouses full of blinking lights and humming servers – and then lease out slices of that capacity to anyone who needs it. It’s like owning a fleet of excavators and then renting them out to anyone building a swimming pool. Far more economical than everyone building their own, wouldn’t you agree?

It’s particularly appealing to AI start-ups. Building your own data center is a colossal undertaking, and a rather risky one at that. What if your brilliant AI turns out to be… less brilliant than anticipated? All that hardware gathering dust. It’s far more prudent to rent, to test the waters, as it were. OpenAI, for instance, initially relied entirely on Microsoft Azure, before venturing into building its own facilities. A sensible move, but a telling one – it demonstrates the enduring demand for this infrastructure. Several AI clients may run their workloads on cloud computing servers indefinitely, which is why the upfront investment from Microsoft, Amazon, and Alphabet makes sense.

Eventually, these companies will have built out all the computing capacity they require. At that point, the expense shifts from construction to maintenance – replacing the occasional burnt-out server, upgrading the cooling systems. And that, my friends, is when the cloud computing divisions of these three transform into veritable cash cows. A rather pleasant prospect for investors, wouldn’t you say? Currently, they’re all doing quite well, but the next five years, as AI spending accelerates, could be truly remarkable.

A Quick Look Under the Hood

Let’s start with Amazon Web Services (AWS), the largest player, and, curiously, the slowest growing. They clocked a 24% year-over-year increase in the fourth quarter – the best they’ve seen in over three years. Particularly encouraging is the growth in their in-house designed chips, which saw triple-digit revenue growth. If they can maintain that pace throughout 2026, Amazon will benefit handsomely. It’s always good to see a company investing in its own technology.

Then we have Google Cloud, the fastest growing. They posted a jaw-dropping 48% growth in Q4. However, a little digging reveals an interesting fact: Google Cloud added $5.71 billion in revenue year over year, while AWS added $6.79 billion. So, while Google Cloud is growing faster, it’s still playing catch-up. Still, it’s an exciting part of Alphabet’s business, and the rapid development of Gemini, one of the top generative AI models, should provide a further boost.

Finally, Microsoft Azure. Microsoft, frustratingly, doesn’t provide single-segment results, only growth rates. So, it’s impossible to know exactly how big or profitable Azure is. Still, it grew 39% year over year – an impressive figure. Azure remains a key reason to own Microsoft stock, and I suspect that won’t change anytime soon, particularly given its massive $625 billion backlog for services. A rather substantial number, even by tech standards.

There’s a colossal demand for AI computing power, and these three cloud computing providers are the primary means by which AI companies are accessing it. Their move to invest billions of dollars in capital expenditures is, in my view, entirely justified, even if the market doesn’t fully appreciate it in the short term. Patience, as they say, is a virtue. And in this case, it might just be a profitable one.

2026-02-18 22:12

The Cloud: It’s Just Someone Else’s Computer

A Quick Look Under the Hood

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