Amazon vs. Microsoft: Which Stock Is a Better Buy for 2026 and Beyond?

Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) enter 2026 with the same headline tailwind: enterprises are rebuilding their tech stacks around cloud computing and generative AI (artificial intelligence). Even more, they have similar headwinds: the capital-intensive nature of building out AI infrastructure -- and more AI demand than they can handle (or is that a tailwind?).

Regardless, these are two great companies with stocks likely to perform well over the long haul, but one looks slightly more attractive than the other.

Imate source: Getty Images.

Amazon: More than an e-commerce business

If you think Amazon is primarily an e-commerce business, think again.

The company's third-quarter net sales rose 13% year over year to $180.2 billion, while operating income came in at $17.4 billion -- and AWS (Amazon's cloud business, called Amazon Web Services) alone produced $11.4 billion of that operating income.

Even more, this lucrative cloud business is seeing accelerating growth. AWS revenue increased 20% year over year to $33.0 billion in the third quarter. That is a clear step up from the 17.5% AWS growth Amazon posted in the second quarter.

And it gets better. Amazon has another fast-growing profit lever beyond e-commerce: advertising. The company's third-quarter advertising services revenue rose 24% year over year in Q3.

But free cash flow is moving in the wrong direction. Amazon's trailing 12-month operating cash flow increased to $130.7 billion in Q3, yet free cash flow fell from $47.7 billion to $14.8 billion as capital spending rose.

Microsoft: a fast-growing software giant

In a win for Microsoft over Amazon, its overall business is growing faster. The software giant's revenue grew 18% year over year to $77.7 billion, and operating income rose 24% to $38.0 billion.

Like Amazon, Microsoft's cloud business is the primary driver behind the tech company's growth. Microsoft cloud revenue, for instance, grew 26% year over year to $49.1 billion. With that said, Microsoft's cloud business includes more than cloud computing. It's made up of Microsoft 365, Commercial Cloud, Azure, Dynamics 365, commercial revenue from LinkedIn, and more. Still, Azure (Microsoft's could computing business) is a key driver for Microsoft's overall cloud revenue. The company's "Azure and other cloud services" revenue increased 40% year over year in the first quarter of fiscal 2026.

It's not surprising that, like Amazon, Microsoft is investing heavily in AI-capable cloud computing. The company is not only seeing growing demand from Azure customers looking for AI computing, but it is also integrating AI across its products and services.

"Our planet-scale cloud and AI factory, together with Copilots across high-value domains, is driving broad diffusion and real-world impact," Microsoft CEO Satya Nadella said in the company's fiscal first-quarter earnings release. "It's why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead."

The tiebreaker

So, Microsoft may be growing faster than Amazon. However, Amazon's AWS is the leading cloud infrastructure platform -- a position that may make its recent aggressive investments less of a gamble for its shareholders. Whatever the case, both companies notably have diversified businesses and have enough excess capital to invest heavily in the AI boom to capture any opportunities.

The tiebreaker probably ultimately boils down to valuation. Amazon's forward price-to-earnings ratio of about 28 is slightly below Microsoft's of about 31, giving it the edge (albeit a small one) in a head-to-head comparison.

So, if I had to choose a winner here, I'd choose Amazon. That's arguably the better of the two stocks for 2026 and beyond.

Of course, there are risks for both stocks. The main one is that both companies' huge spending on AI computing doesn't pay off in the revenue and profits that management anticipates. Investors should keep a close eye on these evolving risks; if the AI boom fizzles out, investors may have to reassess whether these stocks deserve the premium valuations they currently have. But, ultimately, these are two stocks I believe will do well over the long haul.

Additionally, it's worth noting that these stocks will almost certainly trade with meaningful volatility, given the constantly changing nature of their industries and their stocks' premium valuations. Investors who think Amazon or Microsoft look attractive today, therefore, should consider keeping any position in these stocks small, given the risks. They could always add more to their positions if the stocks take a hit.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.