While Microsoft is scaling down its commitment to data center initiatives, both Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) are reinforcing their stakes in the sphere of artificial intelligence (AI). Both tech behemoths have substantial investments slated for 2025, and if past developments are any indication, these investments could deliver considerable returns. It’s worth investigating why both these tech stocks may be suitable additions to your investment portfolio at this juncture.
While Microsoft has put some early-stage AI initiatives on hold, Amazon and Alphabet are not wavering from their aggressive investment strategies. Alphabet reiterates its commitment to allot $75 billion to data center capital expenses this year, and harbors plans to raise this number to $100 billion in the ensuing years. Amazon perceives AI as a revolutionizing entity, with CEO Andy Jassy referring to it as ‘a once-in-a-lifetime reinvention of everything we know’.
These spending strategies are not novel. Amazon’s past includes instances of aggressive capital expenditure that have been instrumental in its phenomenal growth. Sectors like its logistics network and Amazon Web Services (AWS) have witnessed consistent reinvestment, ensuring a robust infrastructure that paves the way for long-lasting success. Alphabet’s Google Cloud arm, despite facing initial setbacks, has been displaying profitability signals recently, with its operating income skyrocketing 142% to $2.1 billion in the previous quarter.
Analysts from Goldman Sachs have noted a direct relationship between periods of heightened investment and revenue growth for Amazon in the past. Evidently, hefty investment cycles have been followed by Amazon’s stock consistently surpassing market performance. Amazon’s current focus on AI infrastructure, inclusive of data centers, ensures promising future free cash flow (FCF) and return on invested capital (ROIC).
Amazon anticipates cost reductions in AI infrastructure due to the availability of more chip alternatives beyond Nvidia, with inference costs predicted to reign supreme in the long term. To tackle this, Amazon and Alphabet are both in the process of creating custom AI chips specifically designed for inference tasks. Amazon’s upcoming Trainium2 chip boasts a superior price-to-performance ratio, outperforming current GPUs by 30% to 40%.
With Alphabet taking the lead with its Ironwood chip, specifically designed for inference tasks in the ‘age of inference’, it offers enhanced computation power and energy efficiency. Amidst the potential pullback of Microsoft from the AI sector, Amazon and Alphabet are primed for expanding their presence in the increasingly lucrative AI realm.
Both Amazon and Alphabet aren’t solely pouring investment into infrastructure. Both giants are heavily incorporating AI in their fundamental business models. For Amazon, AI has led to advancements in logistical effectiveness and the personalization of customer shopping recommendations. Alphabet, on the other hand, with its breakthroughs in AI models like Gemini 2.5 and Veo 2, is well-positioned to augment its search and ad sectors.
Given the recent slump in market conditions, the stocks of both these tech giants have become even more appealing from a valuation standpoint. Bolstered by their history of successful large-scale investments and the vast potential inherent in AI, both Amazon and Alphabet seem ideally poised to dominate the AI landscape in the long run.
In conclusion, the strategic outlays estowed by Amazon and Alphabet in AI infrastructure and custom chip design emphasize their confidence in the future implications of this technology. These businesses have consistently demonstrated their capability to convert large-scale investments into profitable endeavors, making them strong contenders to exploit the emerging AI opportunities.
As the market continues to mature, it may be the perfect time to consider the inclusion of both stocks in your portfolio, especially if you’re seeking long-term growth potential. Investors wanting to diversify their portfolio with AI exposure will find Amazon and Alphabet to be compelling choices.
The real question that remains is: Are you prepared to invest in the promising future of AI with the likes of these tech leaders? Their determination and continuing investment in AI technologies and infrastructure signify their belief in AI’s potential, making these companies two potential front-runners in the ongoing AI race.
For those who believe in the transformative power of AI and its implications, putting their faith in companies like Amazon and Alphabet that continue to invest heavily in AI might be the right move. These companies have repeatedly demonstrated their ability to outpace market trends, making them lucrative investment choices for those wishing to further diversify their portfolios.