Amazon and Microsoft are spending $400 billion on AI—and investors are low on patience

The horse race between Amazon and Microsoft’s cloud computing businesses has gone through various phases over its nearly two-decade history, with the current AI boom pushing the rivalry to a new, and perhaps unsustainable, level of intensity. 

Each company is set to spend roughly $200 billion this year building out its data centers—an unprecedented level of investment—in a frenzied bid to keep up with demand for AI services and to avoid getting overtaken by other cloud rivals like Google. The cloud titans have also forged partnerships and deals with the big AI model makers, creating a web of shifting alliances that each hopes could reshape the competitive landscape.

This week, investors will get an important update on the state of this epic cloud rivalry, when Microsoft reports its quarterly earnings on Wednesday and Amazon follows suit on Thursday. While Amazon and Microsoft have been locked in the cloud battle for years, the pressure has never been higher and investor patience has never been more unpredictable. Revenue growth, profit margins, and customer backlogs at Amazon Web Services and Microsoft Azure will be closely scrutinized. But the costs of the race will also be destiny determinants, as investors question the massive sums of capital being deployed and the timeline for seeing a return on the investment.

Last Thursday, Google parent Alphabet’s stock cratered 7% after the company raised its capital-expenditure projections for the year and reported negative free cash flow in its second quarter. For Amazon and Microsoft, the two cloud computing leaders, getting an edge could hinge on who can convince investors that they can soak up all that investment and spin it into gold faster. 

Luke Rahbari, CEO of Equity Armor Investments who holds both stocks across several portfolios, said that even the act of raising and allocating capital has become a competitive bloodsport. 

“Whoever controls the money controls the winners,” said Rahbari. “You’ve got to soak up as much money as you can so there isn’t as much money available to other players.”

Rahbari said he’ll be listening this week for signs of shakiness, and cracks in the voices of Microsoft CEO Satya Nadella and Amazon’s Andy Jassy, like the kind Rahbari made “when I had to call my parents from boarding school and tell them what kind of trouble I got into.”

Most investors are all in on both sides of the horse race. Amazon and Microsoft are two of the five largest weights in the S&P 500 with 8% to 9% of the........

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