Amazon, Microsoft and Google are quietly morphing their businesses - and Wall Street is missing the big picture

Dow Jones06-04 23:03

MW Amazon, Microsoft and Google are quietly morphing their businesses - and Wall Street is missing the big picture

By Christine Ji

Tech giants are shifting from solely providing computing power to distributing AI models, unlocking a lucrative new revenue stream

Cloud platforms like AWS Bedrock and Microsoft Azure are seeing a wave of interest as buyers look for vendor-agnostic systems to deploy custom AI tools.

Alphabet, Amazon.com and Microsoft have become some of the largest companies in the world. And one analyst thinks the party is just getting started as these hyperscalers expand their growth beyond artificial-intelligence data centers.

As enterprises race to adopt AI, Alphabet $(GOOGL)$ $(GOOG)$, Amazon (AMZN) and Microsoft $(MSFT)$ are "quietly shifting from being providers of AI compute capacity to becoming AI model and product-distribution hubs for OpenAI and Anthropic to scale in the enterprise," UBS analyst Karl Keirstead wrote in a Wednesday note.

For example, Amazon has been steadily strengthening its partnership with Anthropic, investing $5 billion in the Claude creator in April. Anthropic has agreed to spend more than $100 billion on Amazon Web Services over the next decade, and AWS customers can now access the Claude platform directly without additional contracts or billing relationships.

The medium-term "upside in terms of revenue growth from this broadening-out of AI revenue sources is underappreciated by [Wall] Street and could drive [revenue] estimates and the stocks higher," Keirstead added.

The hyperscalers' beneficial relationships with OpenAI and Anthropic could already be seen this earnings season in their explosive cloud and backlog growth.

"It is abundantly clear to investors that the hyperscalers are getting a massive boost from compute-hungry model providers," Keirstead wrote.

Amazon, Alphabet and Microsoft are also quickly converting their contracts into revenue, giving investors more confidence in the stability of their cloud businesses. Alphabet expects to recognize over 50% of its backlog in the next two years, resulting in $231 billion of expected Google Cloud revenue. For context, Google Cloud's current annual run rate is $80 billion, meaning that Google Cloud growth for 2026 and 2027 should be "very strong," according to Keirstead.

Read: Is Microsoft ditching OpenAI for Anthropic?

AI revenue in particular experienced strong growth in the first quarter of 2026. Microsoft reported total annualized AI revenue of $37 billion, and UBS estimates that around $33 billion of that comes from Azure. Annualized AWS AI revenues surpassed $15 billion, and Google's enterprise AI revenue grew 800% year over year. Azure's growth "strongly hints to us that Microsoft is benefiting substantially from its material exposure to OpenAI," Keirstead wrote.

These cloud revenues aren't just coming from bringing new data-center capacity online, Keirstead believes. Big Tech companies are also becoming distribution platforms for AI models. Platforms like AWS Bedrock, Microsoft Foundry and Google Vertex allow enterprises to access models of their choice and build custom AI agents instead of acquiring them from third-party software providers.

According to UBS's industry checks, enterprise AI budgets are shifting toward hyperscalers because customers want the flexibility of a third-party platform to try different models.

Additionally, while Anthropic and OpenAI do sell their products directly to enterprises, they're often utilizing AWS and Azure to distribute their offerings. "Many large organizations will end up accessing AI coding agents as well as many other [first-party] products of Anthropic and OpenAI through their existing commercial relationships with AWS and Microsoft Azure," Keirstead predicted.

The hyperscalers' valuations "have by no means peaked," in Keirstead's opinion. Microsoft trades at 22.5x forward earnings, Amazon trades at 27.1x and Alphabet trades at 25.2x - levels that Keirstead believes are not pricing in the hyperscalers' growing AI opportunities.

Read: Why Alphabet's stock is the standout gainer on Big Tech's monster earnings day

-Christine Ji

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 04, 2026 11:03 ET (15:03 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.

At the request of the copyright holder, you need to log in to view this content

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • vuvence IX
    02:38
    vuvence IX
    They all have clients, but there are alternatives to shopping on Amazon. What are the alternatives for google search and microsoft suite. Tried open office, but work gives me windows and software for free so we are locked into Microsoft and are unlikely to change anytime soon. 
Leave a comment
1
1