Amazon Microsoft AI spending faces investor test in earnings

Amazon Microsoft AI spending is becoming the central question for investors as the two cloud leaders head into earnings with plans to pour roughly $400 billion combined into data centers and AI infrastructure. Microsoft reports quarterly results Wednesday, followed by Amazon on Thursday, giving Wall Street a fresh look at whether AI demand can justify the pace of investment.

The scrutiny follows a warning shot from Alphabet. Google’s parent company fell 7% last Thursday after lifting its capital-spending forecast and reporting negative free cash flow for the second quarter.

Investors are expected to focus on growth, margins and customer commitments at Amazon Web Services and Microsoft Azure. They will also be watching how much cash the companies are using to build capacity before that spending turns into revenue.

What are investors watching in Amazon and Microsoft earnings?

Investors will look for evidence that the companies can keep cloud revenue growing while protecting margins and funding new AI data centers. Backlogs, also known as remaining performance obligations, matter because they represent signed customer contracts that should become future revenue.

Luke Rahbari, CEO of Equity Armor Investments, told Fortune that capital itself has become part of the competition. “Whoever controls the money controls the winners,” Rahbari said, adding that he will listen for signs of strain from Microsoft CEO Satya Nadella and Amazon CEO Andy Jassy.

Amazon and Microsoft are major holdings in the S&P 500, together accounting for about 8% to 9% of the index, according to Fortune. S&P Capital IQ data cited by Fortune shows Microsoft trading at about 23 times expected earnings, compared with 27 times for Amazon. Microsoft shares are down 19% this year, while Amazon has been roughly flat to up 2.5%.

How do AWS and Azure compare?

Melissa Otto, global head of Visible Alpha research at S&P Global, told Fortune that Amazon and Microsoft compete, but often serve different customer needs. She described AWS as more flexible and suited to startups and large machine-learning workloads, while Azure fits companies already using Microsoft software.

Synergy data cited by Fortune gives Amazon 28% of the cloud market and Microsoft 21%. Google Cloud ranks third, with a share that has moved between 12% and 14% depending on the quarter.

Visible Alpha consensus estimates put AWS net sales at $168 billion in 2026, up from $128.7 billion last year. Otto said AWS is expected to post a 93.8% gross margin and a 35.4% operating margin. Bank of America analysts said AWS has $364 billion in remaining performance obligations, excluding a recent $100 billion Anthropic deal, and more than $225 billion in commitments tied to its in-house chips.

Microsoft’s Azure and other cloud services are expected to reach $148.9 billion in fiscal 2027, up from about $106 billion in fiscal 2026, according to Visible Alpha. Microsoft disclosed nearly $627 billion in remaining performance obligations, up 99% from a year earlier, Bank of America analysts wrote, though that total covers its broader commercial business, including Azure, Microsoft 365 and Dynamics.

Why are Amazon and Microsoft spending so much on AI?

Amazon has guided to about $200 billion in companywide capital expenditures in 2026. Microsoft spent $104 billion in the first nine months of fiscal 2026 and is expected to approach $190 billion for the calendar year, based on April guidance from CFO Amy Hood cited by Fortune.

Jassy told shareholders in his annual letter that AWS is not spending on speculation and already has customer commitments for a substantial share of its planned 2026 capital expenditure. He wrote that AWS often must buy land, power and computing equipment six to 24 months before billing customers for cloud services.

Amazon’s free cash flow fell to $1.2 billion over the past 12 months from $25.9 billion a year earlier, and its bond debt more than doubled to more than $120 billion, according to Fortune. Microsoft is funding about $35 billion per quarter of buildout from operating cash flow, with free cash flow of $73 billion for the 12 months ended in March.

AWS chief AI and technology officer Matt Wood told Fortune that Amazon sells new capacity as it becomes available. Nadella told a Morgan Stanley conference in March that Microsoft’s case rests on a broad customer base, strong use of infrastructure and long-term software economics.

This story draws on original reporting from Fortune.