Amazon’s cloud business earns almost twice as much operating profit as Google Cloud. Google Cloud is growing more than twice as fast. Choosing between the stocks requires deciding which advantage will survive the enormous bill for building the next generation of AI infrastructure.
Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOGL) give shareholders much more than cloud exposure. Retail and advertising are critical at Amazon; Search and YouTube are at Alphabet. The cloud businesses can change the growth trajectory, but shareholders own the full companies, including their spending obligations. A low headline P/E is particularly unhelpful when investment gains inflate both companies’ reported net income.
Amazon’s investment gains make its headline earnings look exceptionally cheap. Strip those gains out of the valuation exercise, and what price does AWS leave investors paying for the rest of Amazon?
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Amazon has the larger profit engine
Amazon’s July 30 report showed AWS generated $42.2 billion of June-quarter revenue and $16.6 billion of operating income, a 39.4% margin. Revenue increased 37% from a year earlier. That is substantial growth for a business already producing more than $50 billion of trailing annual operating profit.
Alphabet reported on July 22 that Google Cloud’s revenue rose 82% to $24.8 billion, with $8.8 billion of operating income and an approximately 35.6% margin. Its smaller base leaves more room for rapid expansion, although investors should resist projecting one exceptional growth rate indefinitely.
These margins are useful, but they are not identical measures of fully burdened shareholder returns. Alphabet records substantial shared AI research costs outside its Cloud segment. Neither segment’s operating margin deducts the entire current cash cost of new infrastructure. Depreciation spreads equipment costs over time, while shareholders fund capacity before its revenue is fully established.
Alphabet offers a lower operating-profit hurdle
At the October 2 close, Alphabet traded at approximately 27.8 times trailing operating income on an enterprise-value basis, compared with 30.3 times for Amazon. Both figures value the consolidated company. They should not be mistaken for standalone cloud multiples. Alphabet’s figure includes around $19 billion of preferred equity added to the standard enterprise value.
Both feature in our 10 Stocks With New Strategic Partnerships Investors Should Watch. Several companies on that list collect fees from financing or implementing AI instead of owning the cloud platforms. Those alternatives carry different claims on the same spending cycle.
The discount favors Alphabet, but cash conversion stops this from being an easy bargain claim. Its trailing free cash flow was $53.3 billion, while its latest quarter consumed $5.9 billion after property and equipment purchases. The annual figure still benefits from earlier quarters with lower investment spending.
Amazon’s company-defined trailing free cash flow was negative $7.6 billion. Its calculation deducts equipment purchases net of sales proceeds and incentives, whereas Alphabet deducts property and equipment purchases. The measures are therefore not perfectly identical. Even with that favorable netting, Amazon’s recent investment exceeded its operating cash generation.
Alphabet also raised equity and preferred capital in June, alongside additional debt. Strong historical profits do not mean the current expansion is being financed entirely from internally generated cash. For both stocks, future utilization and the durability of margins matter more than the size of the announced spending budget.
The choice depends on what improves next
Insider Monkey’s hedge fund database counted 369 Amazon holders in Q2 2026, up from 353 in Q1 2026 , and 275 Alphabet holders, up from 265. Arrowstreet increased its Amazon common-share position approximately 23.8% to 40.35 million shares. Fisher Asset Management increased its Alphabet position about 2.4% to 39.99 million shares. These filings provide historical positioning, not a forecast of cloud returns.
September 15 short interest totaled around 81.44 million Amazon shares, about 0.8% of float, and 87.39 million Alphabet Class A shares, about 1.5% of that class’s float. Neither snapshot settles the capital-spending debate.
I favor Alphabet at these valuations: faster Cloud growth and a lower consolidated operating-profit multiple offer the more appealing combination. The bear case is that Search economics weaken while infrastructure spending stays elevated, reducing the cash support behind Cloud’s expansion.
Amazon could overturn that preference if AWS maintains its stronger margin while retail improvements and maturing infrastructure lift cash after investment. Its risk is paying a higher operating-profit multiple before that cash recovery appears. The most useful next evidence is not another record spending announcement. It is whether each new dollar of capacity begins generating enough additional cash to make the spending easier to fund.
