Despite notable year-to-date stock performance, Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) are identified as compelling long-term investment opportunities within the artificial intelligence (AI) sector. Amazon’s shares have climbed approximately 8% this year, while Alphabet has seen a roughly 13% increase, more than doubling over the past year. This sustained momentum raises questions for long-term investors regarding entry points, yet the underlying AI infrastructure build-out is considered to be in its early stages, supported by the formidable cash-generating capabilities of both tech giants.
Amazon’s Accelerating Cloud and Strategic AI Investments
The core of Amazon’s investment appeal lies in Amazon Web Services (AWS), its highly profitable cloud computing division. AWS reported a 28% year-over-year revenue increase in the first quarter of 2026, reaching $37.6 billion. This marks its fastest growth in over three years, accelerating from 24% in the fourth quarter of 2025 and 20% in the third quarter. With an annual revenue run rate already at $150 billion, this acceleration is particularly noteworthy. Amazon CEO Andy Jassy commented on the company’s first-quarter earnings call, stating, “It’s very unusual for a business to grow this fast on a base this large.”
Beyond its core cloud services, Amazon is strategically investing in custom-chip development to reduce AI computing costs. Its chips business, encompassing Graviton, Trainium, and Nitro, has surpassed a $20 billion annual revenue run rate and is experiencing triple-digit growth. Furthermore, Amazon’s high-margin advertising business expanded by 24% to over $17 billion in the quarter. These robust revenue streams are funding substantial capital expenditures, with Amazon guiding for approximately $200 billion in 2026. First-quarter capital spending alone reached $44 billion. While this aggressive investment has reduced the company’s trailing-12-month free cash flow to around $1 billion, the underlying business strength is considered exceptional. Amazon’s stock currently trades at approximately 30 times earnings.
Alphabet’s Rapid Cloud Expansion and AI Leadership
Alphabet’s growth narrative is arguably even more dynamic, driven by its Google Cloud segment. Google Cloud revenue surged by 63% year over year in the first quarter of 2026, reaching $20 billion. This represents an acceleration from 48% in the fourth quarter of 2025 and 34% in the third quarter, positioning it as the fastest-growing among major cloud platforms. The segment’s backlog, representing contracted revenue not yet recognized, nearly doubled from the previous quarter to exceed $460 billion.
Alphabet CEO Sundar Pichai highlighted the pivotal role of AI, noting in the company’s first-quarter earnings call that “Our enterprise AI solutions have become our primary growth driver for Cloud for the first time.” He further added that “revenue from products built on our gen AI models grew nearly 800% year over year.” Complementing this cloud expansion, Alphabet’s core “Google search and other” segment demonstrated strong momentum, with revenue rising 19% year over year, mitigating concerns about AI chatbots impacting search. Overall, Alphabet’s total revenue grew 22% to $109.9 billion.
Similar to Amazon, Alphabet is undertaking significant capital investments. The company raised its 2026 capital expenditures guidance to a range of $180 billion to $190 billion, with Chief Financial Officer Anat Ashkenazi indicating a significant increase in spending for 2027. To support these investments, Alphabet recently announced plans to raise over $80 billion through an equity offering. The stock trades at approximately 27 times earnings.
Long-Term Outlook Amidst Investment and Regulatory Scrutiny
Both Amazon and Alphabet are committing substantial capital to AI, which is currently impacting near-term free cash flow. This aggressive spending strategy carries the inherent risk that returns may not materialize as quickly as outlays. Additionally, both companies face ongoing regulatory scrutiny, which could intensify as their market influence grows.
Despite these considerations, both companies possess robust core franchises and cloud units that continue to accelerate their growth, even years into the AI era. Should the AI infrastructure build-out extend for another decade, a scenario suggested by their current spending plans, Amazon and Alphabet appear well-positioned to compound returns. Investing in both for the long haul, while prudently managing position sizing given the inherent risks, presents a compelling strategy, even following their strong recent stock performances.
