Microsoft vs. Amazon: 1 AI Giant Is the Better Buy Ahead of Earnings

The tech earnings season has just begun. For AI-focused investors, the busiest stretch is between the last two weeks of July, when nearly all the tech giants report within roughly one week. This period is likely to set the tone for AI and semiconductor stocks for the rest of the quarter. Microsoft (MSFT) and Amazon (AMZN), two of the "Magnificent Seven" giants, are also set to report by the end of July, with investors closely watching how heavy AI investments are translating into revenue growth and profitability.

Here's why one appears to be the better AI opportunity ahead of earnings.

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Microsoft will report its fiscal fourth quarter 2026 earnings on July 29 after the market closes. Like the first three quarters of fiscal 2026, the tech giant is set to end the fiscal year with strong momentum.

In the fiscal third quarter, Microsoft's AI business surpassed a remarkable $37 billion annual revenue run rate (ARR), growing 123% from a year ago. Microsoft Cloud revenue climbed to $54.5 billion, up 29% year-over-year (YoY). Microsoft has built an integrated AI ecosystem spanning infrastructure, cloud services, enterprise software, security, developer tools, and productivity applications. Azure continues to be Microsoft's biggest growth engine, with sales increasing 40% YoY. As demand continues to exceed available capacity, the company added another gigawatt of data center capacity during the quarter. It remains on track to double its global AI infrastructure footprint within just two years.

Microsoft continues to invest aggressively to secure its leadership position in enterprise AI. Capital expenditures totaled $31.9 billion in Q3, with roughly two-thirds directed towards short-lived assets such as GPUs and CPUs needed to support AI workloads. The rest of it went into long-term infrastructure that management expects to monetize over the next 15 years and beyond. The benefits of AI monetization are extending well beyond the cloud to Microsoft's software business. Microsoft 365 Copilot saw paid seats rising 250% YoY to more than 20 million.

Heading into fiscal Q4 earnings, Microsoft's AI investments are already translating into measurable revenue growth across cloud infrastructure, enterprise software, developer tools, and productivity applications. The company generated total revenue of $82.9 billion, an increase of 18% YoY, with earnings rising by 21% to $4.27 per share. Management expects 39% to 40% Azure growth in Q4, with total revenue climbing by 13% to 15% to land between $86.7 billion and $87.8 billion. The consensus estimate for revenue is $87.7 billion with EPS landing at $4.24 per share. Management is also confident of another year of double-digit revenue and operating income growth in fiscal 2027, implying that AI investments will continue driving long-term growth.

Overall, MSFT stock remains a "Strong Buy" on Wall Street. Of the 50 analysts covering the stock, 42 rate it a "Strong Buy," three say it is a "Moderate Buy," and five rate it a "Hold." MSFT stock is down 17% year-to-date (YTD), but Wall Street expects the stock to bounce back by 35% from current levels if it hits its mean target price of $543.96. Plus, its high price estimate of $680 implies the stock has an upside potential of 69% over current levels.

Amazon is mostly renowned for its e-commerce business and as the world's largest cloud infrastructure provider with Amazon Web Services (AWS). But it is also quietly building one of the industry's largest AI ecosystems. Unlike most tech companies, Amazon isn't treating AI as a single product or a single business. AI is part of its entire ecosystem that spans cloud computing, e-commerce, advertising, logistics, healthcare, devices, autonomous driving, and satellite communications. This diversification is what makes Amazon's AI game entirely different.

Amazon will report its second quarter earnings on July 30 after the market closes. While AMZN stock has climbed just 9% YTD, another strong quarter might push the stock higher.

Amazon is positioning AWS as the most flexible AI platform in the market. Through Bedrock, Amazon allows enterprises to choose from multiple foundation models rather than being locked with a single provider. In the first quarter, customer spending through the platform increased by 170% sequentially. Another major achievement is that now OpenAI's latest models are available through Amazon Bedrock. This will allow AWS customers another leading AI option alongside Anthropic, Meta, Amazon Nova, and other models.

Amazon has also dipped its hands in the AI chip business. The company now manufactures custom AI chips, Trainium and Graviton, which reduce customers' computing costs while improving Amazon's profit margins. With more than $225 billion in Trainium revenue commitments, management believes its custom silicon business has now become one of the world's largest data center chip operations. Amazon has signed multi-year, multi-gigawatt AI training commitments with OpenAI and Anthropic for its custom AI chips. Its own chip business could save money for the company, giving it a competitive advantage over peers that depend more heavily on third-party hardware. The company now has a steady stream of new enterprise customers, including Meta (META), Nvidia (NVDA), Uber (UBER), Bloomberg, AT&T (T), and the U.S. Army, showing that AWS continues to win AI workloads across industries.

In its automotive business, Amazon's Zoox partnership with Uber will give the company another commercialization pathway for autonomous vehicles beyond operating its own fleet. Amazon's cash capital expenditures totaled $43.2 billion during Q1, with the vast majority directed toward AWS and generative AI infrastructure. While investors have been concerned about the high AI spending, Amazon believes these investments will ultimately prove their worth as data centers are designed to be productive for more than three decades. Meanwhile, servers, networking equipment, and AI chips typically last five to six years.

For the second quarter, management expects revenue between $194 billion and $199 billion, in line with consensus estimates and representing a growth of 17% YoY at midpoint. Analysts also expect an earnings increase of 8.3% to $1.82 per share.

Overall, AMZN stock remains a "Strong Buy" on Wall Street. Of the 57 analysts covering the stock, 49 rate it a "Strong Buy," five say it is a "Moderate Buy," and three rate it a "Hold." Based on the average target price of $315.09, analysts see the stock rebounding around 26%. Plus, its high price estimate of $370 implies AMZN has an upside potential of 48% over current levels.