Key Points
Major cloud computing providers are experiencing rapid growth for their size.
Smaller neocloud competitors are putting up jaw-dropping growth rates.
Nobody knows what the long-term profitability picture of artificial intelligence (AI) will look like. While access to the software will likely be usage- or subscription-based, how successful or profitable these business models will be is anyone's guess. However, there is one thing every generative AI company has in common: They will need to host their training and inference workloads somewhere. While several companies are progressing to running more AI workloads on-device, many will still need to utilize massive computing power via the cloud.
This makes cloud computing providers a solid investment option, as they will benefit over the long term through usage-based workloads. I've got five investment picks that are thriving in the cloud computing space, and that would make for incredible options to add to your portfolio right now.
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The big three cloud computing providers
There are several segments in cloud computing, but the biggest three competitors are Amazon(NASDAQ: AMZN) (Amazon Web Services), Microsoft(NASDAQ: MSFT) (Azure), and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) (Google Cloud). They are the largest cloud infrastructure companies in the world, by far, and are also the primary providers of choice for several major AI companies (like OpenAI and Anthropic). The business model is fairly simple: The provider puts up the infrastructure and maintains it, while users rent access to it. Every time its resources are used, the cloud computing provider collects a fee.
This creates a perpetual revenue cycle that continues as long as the product remains functional. Given how widespread AI use is expected to become, this means there is a huge runway for growth and longevity. As a result, these three companies look like incredible stock picks.
Google Cloud is the fastest-growing service of the three, delivering 48% revenue growth in the fourth quarter. Azure isn't far behind with 39% revenue growth. AWS is the real laggard in this trio, with only 24% growth in Q4. However, that was its fastest growth rate in over three years, and AWS' share of the market is almost as large as those of Google Cloud and Azure combined, which makes rapid growth on a percentage basis more difficult for it to achieve.
Each company's cloud computing division is its fastest-growing segment. With all three companies spending hundreds of billions of dollars on infrastructure to capitalize on massive demand, these segments are likely to grow rapidly for years to come.
All three of these stocks look primed for success, and I believe they will outperform the market due to their high exposure to the AI build-out.
The neocloud stocks
There's another, more AI-focused, segment of cloud computing known as the neocloud. Companies in that niche focus specifically on AI data center infrastructure, unlike the big three, which provide a wide array of cloud computing services. By being AI-focused, these companies are capitalizing on the massive AI build-out going on right now, and their growth rates show it.
Nebius (NASDAQ: NBIS) and CoreWeave(NASDAQ: CRWV) are two of the biggest neocloud names, and they are quickly becoming massive competitors in their space. CoreWeave is the "slower-growing" one, even though Wall Street analysts expect it to deliver 143% revenue growth this year and 88% next year. Nebius is growing even faster, with the average Wall Street analyst projecting a 524% top-line increase in 2026 and a 201% gain in 2027.
These growth rates show the massive demand for AI computing power, but there's one problem: These companies are not sustainably profitable yet. That puts them at a disadvantage compared to companies like Amazon, Microsoft, and Alphabet, which are already making loads of money from their cloud computing platforms.
If CoreWeave and Nebius become solidly profitable, I think their returns could far outpace those of the big three cloud computing providers.
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Keithen Drury has positions in Alphabet, Amazon, Microsoft, and Nebius Group. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
