Key Points

Amazon is more leveraged to cloud computing than Microsoft is.
Both companies are growing and are valued similarly.
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Two of the biggest and most influential firms globally are Microsoft and Amazon. Both sit among the five largest companies worldwide, ranked fourth and fifth. Yet investors often wonder which represents the stronger pick at present.

At first glance the businesses appear distinct, yet deeper examination reveals substantial overlap. So which deserves the nod as the better purchase? We will examine the details.

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Cloud computing drives major value for each firm

Most people would describe Microsoft as a maker of computer software and Amazon as a retailer that ships products. Those descriptions hold some truth but overlook the dominant growth engine for both: cloud computing.

Each operates a leading cloud platform, Microsoft Azure and Amazon Web Services. The impact is striking, particularly at Amazon where AWS delivered 59 percent of operating profits in the first quarter while contributing just 21 percent of revenue. Microsoft reports less detail yet noted its cloud segment expanded 40 percent year over year, marking its quickest-growing division.

These cloud operations form the core investment case for both stocks. Beyond that shared strength the remaining segments differ. Microsoft earns a large share from high-margin business productivity tools that hold up well in downturns. Amazon's retail operations run on thin margins and can suffer when consumers pull back.

Microsoft therefore possesses the more resilient non-cloud business, earning it the advantage in this category.

Winner: Microsoft

Both companies expand at comparable speeds

In the latest quarters revenue growth was nearly identical. Microsoft posted an 18 percent year-over-year revenue increase and 26 percent growth in cash from operations. Cash flow offers a clearer picture than earnings because both firms are investing heavily in data centers and generative AI initiatives.

Amazon revenue rose 17 percent, yet cash from operations surged 53 percent, powered by AWS. Because Amazon's high-margin cloud segment is expanding much faster than its lower-margin retail operations, cash flow growth should remain elevated for some time. Microsoft, with a more balanced mix, is unlikely to match that pace.

Winner: Amazon

Both stocks trade at attractive historical valuations

Using cash from operations as the metric, both companies trade at levels well below their five-year averages. The discount is especially notable for Microsoft. Amazon also sits below recent norms though the gap is smaller. With valuations nearly identical neither stands out, resulting in a tie.

Winner: Tie

A tie is broken by AI progress

Both Amazon and Microsoft remain outstanding long-term holdings and their current prices make them compelling. Still, a decisive factor favors Amazon. Its custom AI chips are growing at triple-digit rates and its partnership with Anthropic is deepening. Microsoft has its own chip efforts and OpenAI ties, yet Amazon's custom silicon momentum and Anthropic performance edge give it the current advantage.

Should you buy Amazon shares now?

Before purchasing Amazon consider the following. The Motley Fool Stock Advisor analyst team recently named the ten best stocks for investors to buy now, and Amazon did not make the list. The ten selections could deliver substantial gains over the coming years. Historical examples include Netflix added on December 17, 2004, which turned a 1,000 dollar investment into 433,268 dollars, and Nvidia added on April 15, 2005, which turned 1,000 dollars into 1,259,391 dollars. Stock Advisor's average return stands at 935 percent versus 206 percent for the S and P 500. Investors can access the latest top ten list through Stock Advisor.

Keithen Drury holds positions in Amazon and Microsoft. The Motley Fool holds positions in and recommends Amazon and Microsoft. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.