Comparative Analysis of Amazon and Alphabet in Cloud Services
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 hour ago
0mins
Should l Buy GOOGL?
Source: Fool
- Amazon E-commerce Growth: Amazon reported $213.4 billion in revenue for Q4, a 13.6% increase year-over-year, with over $177 billion from its e-commerce division, which grew 11.8%, solidifying its leadership in the U.S. e-commerce market, although its lower profit margins present challenges.
- AWS Profitability: Amazon Web Services (AWS) generated $35.5 billion in revenue in Q4, up 23.6%, with operating income of $12.4 billion, significantly surpassing the e-commerce segment's $11.6 billion, indicating AWS as a key growth driver despite concerns over a $200 billion AI infrastructure investment.
- Strong Google Advertising Revenue: Alphabet achieved $113.8 billion in revenue in Q4, with $95.8 billion from advertising, resulting in a profit of $40.1 billion, showcasing its dominant profitability in internet advertising, far exceeding Amazon's retail business.
- Cloud Market Share: Google Cloud's revenue surged 47% to $17.6 billion in Q4, with operating income of $5.3 billion and a 30% profit margin, indicating competitive strength in the cloud market, while Alphabet plans to invest $185 billion in AI infrastructure, expecting to remain free cash flow positive.
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Analyst Views on GOOGL
Wall Street analysts forecast GOOGL stock price to rise
33 Analyst Rating
26 Buy
7 Hold
0 Sell
Strong Buy
Current: 302.850
Low
305.00
Averages
374.25
High
400.00
Current: 302.850
Low
305.00
Averages
374.25
High
400.00
About GOOGL
Alphabet Inc. is a holding company. The Company's segments include Google Services, Google Cloud, and Other Bets. The Google Services segment includes products and services such as ads, Android, Chrome, devices, Google Maps, Google Play, Search, and YouTube. The Google Cloud segment includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Its Other Bets segment is engaged in the sale of healthcare-related services and Internet services. Its Google Cloud provides enterprise-ready cloud services, including Google Cloud Platform and Google Workspace. Google Cloud Platform provides access to solutions such as artificial intelligence (AI) offerings, including its AI infrastructure, Vertex AI platform, and Gemini for Google Cloud; cybersecurity, and data and analytics. Google Workspace includes cloud-based communication and collaboration tools for enterprises, such as Calendar, Gmail, Docs, Drive, and Meet.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Cloud Market Share: Google Cloud's revenue surged 47% to $17.6 billion in Q4, with operating income of $5.3 billion and a 30% profit margin, indicating competitive strength in the cloud market, while Alphabet plans to invest $185 billion in AI infrastructure, expecting to remain free cash flow positive.
See More
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- Price War Underway: Chinese firm Zhipu AI charges $3 per month for AI access compared to OpenAI's $20 for ChatGPT Plus, highlighting OpenAI's disadvantage in pricing strategy, which could lead to a further decline in its market share.
- Model Competition Disadvantage: Market traders predict an 87% chance that Google's Gemini 3.5 model will be released by June 30, increasing competitive pressure on OpenAI, especially as its best model ranks far below those of Google and Anthropic, potentially impacting its IPO plans.
- Advertising Revenue Strategy: Altman confirmed that ads will be introduced to ChatGPT, and although plans are in early stages, in the context of an intensifying price war, ad revenue could become a vital path to profitability for OpenAI, reflecting the urgency in its revenue model.
See More
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- Strong Advertising Business: Alphabet's advertising revenue surged by 18% year-over-year to $113.8 billion in Q4, driven by enhancements from artificial intelligence, showcasing the resilience of its core business.
- Cloud Business Growth: In Q4, cloud revenue soared 47.8% year-over-year, with a cloud backlog of $247 billion, reflecting a 55% sequential increase and over 100% year-over-year growth, indicating strong demand for cloud and AI services that could fuel future growth.
- Potential Challenges: Despite facing high capital expenditures and increased competition, Alphabet's management has demonstrated resilience in overcoming challenges, and if they can effectively manage spending, the company remains a strong long-term investment.
See More
Analysis of Alphabet's Future Growth Potential
- Market Valuation Target: Alphabet's current market cap stands at $3.7 trillion, and to reach $6 trillion in four years, it needs a compound annual growth rate of 12.85%, which, while above the market's long-term average, is not an unreasonable target.
- Strong Advertising Business: Thanks to AI initiatives, Alphabet's ad revenue surged 18% year-over-year in Q4, reaching $113.8 billion, demonstrating the sustained strength of its core business.
- Cloud Business Growth: In Q4, cloud revenue soared 47.8% year-over-year, with a cloud backlog of $247 billion, reflecting a 55% sequential increase and over 100% year-over-year growth, indicating strong demand for cloud and AI services that will drive future growth.
- Investment Risks and Responses: Despite risks from high capital expenditures and increased competition, Alphabet's management has shown the ability to navigate challenges, having previously cut spending to ensure long-term investment returns in response to economic pressures.
See More
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- Declining Tariff Costs: Apple has incurred approximately $3.3 billion in tariffs since the Trump administration's imposition, with peak quarterly tariffs reaching $1 billion, and the Supreme Court's ruling is expected to gradually reduce these costs, thereby enhancing the company's profit margins and production expenses.
- Supply Chain Adjustments: With the tariff elimination, Apple may face less pressure to shift production to India and Vietnam, allowing it to produce more products for the U.S. market in China, which simplifies its supply chain and improves operational efficiency.
- Potential Refund Issues: The Supreme Court's ruling that Trump's tariffs were illegal could lead to the U.S. government owing over $175 billion in refunds to importers, and it remains unclear whether Apple will pursue these refunds, which could impact its financial strategy.
- Future Uncertainties: Although the tariff ruling presents short-term benefits, the Trump administration plans to impose a new 10% global tariff, which may have ongoing implications for Apple's long-term operations and market strategies.
See More
Comparative Analysis of Amazon and Alphabet in Cloud Services
- Amazon E-commerce Growth: Amazon reported $213.4 billion in revenue for Q4, a 13.6% increase year-over-year, with over $177 billion from its e-commerce division, which grew 11.8%, solidifying its leadership in the U.S. e-commerce market, although its lower profit margins present challenges.
- AWS Profitability: Amazon Web Services (AWS) generated $35.5 billion in revenue in Q4, up 23.6%, with operating income of $12.4 billion, significantly surpassing the e-commerce segment's $11.6 billion, indicating AWS as a key growth driver despite concerns over a $200 billion AI infrastructure investment.
- Strong Google Advertising Revenue: Alphabet achieved $113.8 billion in revenue in Q4, with $95.8 billion from advertising, resulting in a profit of $40.1 billion, showcasing its dominant profitability in internet advertising, far exceeding Amazon's retail business.
- Cloud Market Share: Google Cloud's revenue surged 47% to $17.6 billion in Q4, with operating income of $5.3 billion and a 30% profit margin, indicating competitive strength in the cloud market, while Alphabet plans to invest $185 billion in AI infrastructure, expecting to remain free cash flow positive.
See More
AI Investments Thrive Amidst Economic Slowdown
AI Investment Impact: The recent U.S. fourth-quarter GDP estimate revealed that AI investment was the primary driver of economic growth, contributing to nearly 60% of the total growth despite a weak overall GDP growth of 1.4%.
Government Shutdown Effects: The significant role of AI in the economy was noted even after considering the impacts of the federal government shutdown on economic performance.
See More
