Cloud revenue surge gives Wall Street answer on AI returns

AWS, Azure, Google Cloud all beat revenue estimates as demand surges

Wall Street has been wrestling with a question since the artificial-intelligence boom began: how will the tech giants make back the hundreds of billions of dollars they are spending on AI infrastructure? The latest quarterly results from Amazon, Microsoft and Alphabet point to an answer — cloud computing.

Amazon Web Services posted 37% revenue growth in the second quarter, well above the roughly 31% analysts were projecting, according to the Wall Street Journal. Microsoft’s Azure cloud unit grew 43%, also beating expectations. Google Cloud reported 82% revenue growth. Amazon and Microsoft have added roughly $950 billion in combined market value since reporting results, according to the Journal. Amazon CEO Andy Jassy said Thursday that AWS’ operating profit margin hit 39% in the second quarter.

“The resulting revenue, free cash flow and return on invested capital is very compelling,” Jassy said, according to the Journal.

Unlike other proposed routes to AI monetization — such as chatbot ad sales or subscriptions for access to AI models — cloud computing operates on a financial model that is well understood by investors. The tech giants buy or lease buildings and computing gear, then rent out capacity through their cloud operations. Jassy said it takes less than three years on average for purchases of computing equipment to break even, and most contracts with AI-computing customers are at least five years long.

AI is perhaps the most important driver of that growth, the Journal reported. Companies and AI developers need more computing power, and renting it in the cloud is often the fastest and most convenient option. Large deals are also inflating revenue and backlogs, including the more than $100 billion 10-year contract AWS signed with AI lab Anthropic in April.

But a shift that predates the AI boom has also contributed. Companies have been moving more of their computing work to the cloud and relying less on their own equipment. A Piper Sandler survey of IT leaders in June found that most planned to increase outlays on cloud computing, while relatively few planned to spend more on their own equipment.

Google parent Alphabet’s stock fell initially after it boosted capital spending for the year, but has since recovered and is up about 10% in the past week, according to the Journal. Microsoft also received a large stock-price increase after its results.

Jassy suggested Thursday that AWS could eventually grow into a $1 trillion annual revenue business, according to the Journal. Analysts currently expect AWS to reach about $170 billion of revenue this year, according to FactSet.

Microsoft and Google’s cloud businesses have grown faster than Amazon’s for some time, posing a threat to AWS’s dominance of an industry it pioneered two decades ago, the Journal reported. If their growth remains above AWS’s, the Journal said they could surpass Amazon’s cloud unit by the end of the decade.

The cloud-based business model also provides a layer of protection if the AI boom falters. Should Anthropic, OpenAI and other big buyers of AI computing power struggle, large contracts could be reworked and backlogs shrink, the Journal reported. But cloud providers could fall back on the business model that sustained them before AI.

The same is not true for AI players without cloud businesses, the Journal noted. Meta Platforms’ stock is down about 5% since its earnings report Wednesday, which included a slight increase in the midpoint of its 2026 capital-spending range. CEO Mark Zuckerberg said Wednesday that Meta is considering starting a cloud-computing business of its own, but would start far behind the three industry giants, according to the Journal.