The artificial intelligence (AI) saga, supported by the massive growth of cloud computing and data centers, is yet to fully unfold. This space remains rock solid supported by an extremely bullish demand scenario. The demand for data center capacity has surged to manage and store the vast amount of cloud computing-based data.
In order to reap the benefits of this enormous opportunity, we recommend investors buy three cloud computing behemoths at this stage and hold them for the long term. These stocks are set to immensely benefit in 2026 from an AI-induced cloud boom. These are: Amazon.com Inc. AMZN, Microsoft Corp. MSFT and Alphabet Inc. GOOGL.
The chart below shows the price performance of the three above-mentioned stocks year to date.
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Global e-commerce giant Amazon reported strong third-quarter 2025 results in which both the top and the bottom lines exceeded the Zacks Consensus Estimate. AMZN’s top line has been benefiting from steady momentum in Prime and Amazon Web Services (AWS).
In the third quarter, Amazon’s cloud service has performed impressively with AWS contributing $33.01 billion, up 20.2% year over year. CEO Andy Jassy said in a statement that AWS is “Growing at a pace we haven’t seen since 2022. We continue to see strong demand in artificial intelligence AI and core infrastructure, and we’ve been focused on accelerating capacity — adding more than 3.8 gigawatts in the past 12 months.”
Amazon is using the Claude chatbot of privately held Anthropic for AI exposure. The Trainium2 AI chip has become a lucrative opportunity for the company. In the reported quarter, this business jumped 150% sequentially. AMZN has invested $8 billion in this AI startup.
Anthropic has agreed to use 1 million custom Trainium2 chips from AMZN to run its AI applications by the end of 2025. On Oct. 29, AMZN unveiled its $11 billion AI data center called “Project Rainier.” This will run on Anthropic chatbot using 500,000 Trainium2 AI chips.
In February 2025, AMZN introduced Rufus, a shopping chatbot that can answer and suggest products as per customers’ queries. Management said more than 250 million individuals have already used this product. The e-commerce behemoth has also unveiled Q, a chatbot for businesses, and Bedrock, a generative AI service for cloud customers.
Amazon is extensively using generative AI applications in its retail, cloud, devices and advertisement businesses. Management raised its 2025 capex to $125 billion from $118 billion reported earlier. CFO Brian Olsavsky said capex is likely to increase next year.
AMZN’s AI is reshaping customer experiences across shopping and media. The company expanded Alexa+ Early Access to millions, and its AI shopping agent is used by millions of customers. AMZN rolled out features that turn product summaries and reviews into audio clips and launched tools to help sellers enhance listings. Amazon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Amazon estimated that its fourth-quarter 2025 sales will be in the range of $206-213 billion (mid-point $209.5 billion). The Zacks Consensus Estimate of fourth-quarter EPS (earnings per share) is $1.91, indicating an increase of 2.7% year over year. AMZN has a long-term (3-5 years) earnings growth rate of 20.3%, higher than the S&P 500’s growth rate of 15.9%.
AMZN has an expected revenue and earnings growth rate of 11.3% and 9.5%, respectively, for next year. The Zacks Consensus Estimate for next year’s earnings has improved 0.1% over the last seven days.
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Microsoft reported solid first-quarter fiscal 2026 results, beating the Zacks Consensus Estimate on both counts. MSFT’s intelligent cloud business generated $30.9 billion in revenues, up 28.3% year over year. The company’s flagship Azure product, which is part of this business, witnessed 40% year-over-year growth in revenues.
MSFT has been capitalizing on AI business momentum and Copilot adoption alongside accelerating Azure cloud infrastructure expansion, demonstrating its dominant position in the rapidly expanding cloud and AI markets. These robust results underscore Microsoft’s successful execution of its cloud-first, AI-powered strategy and present a compelling investment opportunity for 2026.
Consequently, MSFT’s capex in the first quarter was $34.9 billion, a large part of which was invested in AI-powered data center infrastructure developments. Management said its capex growth rate for fiscal 2026 will exceed that of fiscal 2025.
Microsoft’s Azure platform maintains a commanding position in the enterprise cloud market, capturing approximately 25% market share behind only AMZN’s AWS. The company’s comprehensive cloud ecosystem benefits from deep integration with existing Microsoft enterprise products, creating substantial switching costs and customer stickiness.
MSFT has strategically embedded AI capabilities throughout its entire product ecosystem, from Azure AI services to Copilot features in Office 365 and Dynamics applications. MSFT’s substantial investment in OpenAI provides exclusive access to leading-edge language models, creating a significant competitive moat in enterprise AI adoption. Unlike competitors developing standalone AI products, MSFT monetizes AI through existing customer relationships, thus reducing customer acquisition costs while expanding revenue per user.
Early enterprise adoption metrics suggest a strong willingness to pay premium pricing for AI-enhanced productivity tools. The company’s vast computing infrastructure and data resources create sustainable advantages in training and deploying AI models at scale, positioning Microsoft to capture substantial value as businesses increasingly prioritize AI implementation.
Zacks Rank #3 (Hold) MSFT closed a new definitive agreement with OpenAI, securing exclusive rights for Azure until AGI achievement through 2030, and extended model and product IP rights through 2032. OpenAI has contracted an incremental $250 billion of Azure services, not reflected in the last results, representing a substantial revenue opportunity.
For the second quarter of fiscal 2026, Microsoft expects total company revenues between $79.5 billion and $80.6 billion, representing growth of 14% to 16%. Operating margins are expected to be relatively flat year over year and down sequentially, aligned with historic seasonality, while the effective tax rate should be approximately 19%.
MSFT has an expected revenue and earnings growth rate of 15.4% and 14.4%, respectively, for the current year (ending June 2026). The Zacks Consensus Estimate for the current year’s earnings has improved 0.1% over the last seven days. It has a long-term (3-5 years) earnings growth rate of 16.8%, higher than the S&P 500’s growth rate of 15.9%.
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The undisputed global leader of Internet search engines and AI-powered cloud giant Alphabet came up with impressive third-quarter 2025 results wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate.
This impressive performance was primarily attributed to excellent momentum in its AI-powered cloud businesses. As a result, GOOGL raised its 2025 capex for the second time in the range of $91-93 billion.
Earlier, capex for 2025 was raised to $85 billion from $75 billion estimated for the first time. Moreover, management said that its planned capital expenditure for an AI-powered data center in 2026 will see a significant increase year over year.
AI-powered cloud revenues increased 32% year over year to $15.16 billion. Alphabet ended the third quarter with a massive cloud-computing backlog of $155 billion. The company’s flagship AI app Gemini 2.5 had more than 650 million monthly active users at the end of the reported quarter compared with 450 million users in the prior quarter.
Google Cloud has solidified its position as the third-largest provider in the highly competitive cloud infrastructure market against Amazon’s AWS and Microsoft’s Azure.
GOOGL is cashing in on the increasing demand for Large Language Models with its most powerful AI model called Gemini. Google Bard and Search Generative Experience are powered by Gemini Pro to deliver an enhanced user experience. Google Cloud offers Duet AI, which provides pre-packaged AI agents that assist developers in writing, testing, documenting and operating software.
GOOGL launched Gemma 3, a collection of lightweight, state-of-the-art open models that can run on a single GPU or Tensor Processing Unit (TPU). At its Cloud Next 2025 conference in Las Vegas, Alphabet unveiled Ironwood, its seventh-generation TPU, expected to be available later this year.
Google Cloud unveiled its Cloud Wide Area Network, giving enterprises access to its private global fiber network. Alphabet also showcased Willow, its new quantum chip while on the AI model front, Alphabet launched Gemini 2.5, its most advanced reasoning model, alongside Gemini 2.5 Flash, a low-latency, cost-efficient version tailored for developers.
Zacks Rank #3 Alphabet has an expected revenue and earnings growth rate of 14.7% and 4.3%, respectively, for the next year. The Zacks Consensus Estimate for next year’s earnings has improved 0.2% over the last seven days. GOOGL has a long-term (3-5 years) earnings growth rate of 16.4%, higher than the S&P 500’s growth rate of 15.9%.
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This article originally published on Zacks Investment Research (zacks.com).
