Meet the 2 Newcomers Challenging the Cloud Computing Titans in Artificial Intelligence (AI)
Key Points
Amazon Web Services, Microsoft Azure, and Google Cloud are experiencing impressive growth considering their size, and they're highly profitable, too.
Nebius and CoreWeave are expanding at triple-digit percentage rates, and are still operating in the red.
Investing in cloud computing companies is one of the primary ways people can gain portfolio exposure to the artificial intelligence (AI) megatrend. Most companies don't have the resources and expertise necessary to build their own AI-centric data centers, so instead, they rent processing power out from cloud computing operations like Amazon (NASDAQ: AMZN) Web Services (AWS), Microsoft (NASDAQ: MSFT) Azure, and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Cloud. Those are the three largest titans in the industry, but they aren't the only options.
Two relative newcomers, CoreWeave (NASDAQ: CRWV) and Nebius (NASDAQ: NBIS), are also viable options for businesses in need of AI cloud capacity, and are growing much faster, in part due to their smaller sizes. So, which cohort would make for a better investment now?
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The established companies are crushing it
AWS is the largest cloud infrastructure operation in the world, and actually provides most of Amazon's profits. AWS accounted for 59% of Amazon's operating income in Q1, and its revenue grew at a 28% rate -- its fastest expansion in nearly four years.
Microsoft doesn't divulge as much information about Azure as AWS and Google Cloud do. It only provides the business unit's growth rate, which was still an impressive 40% in its latest quarter.
However, Google Cloud tops both of them, with an impressive 63% growth rate, but it had some help from its Tensor Processing Units (TPUs).
TPUs are powerful computing units that can outperform general-purpose GPUs from a cost standpoint when handling the specific deep learning and matrix mathematics workloads they are designed for. Deploying its TPUs helped Alphabet catch up in the AI build-out, and now, it is starting to sell those proprietary AI chips directly to other companies rather than just renting out their processing power. With external sales of these units contributing to Google Cloud's growth rate, the waters get a bit murky in terms of gauging how well the infrastructure business alone is doing, but it's still the fastest-growing of the three despite being the smallest.
While Microsoft doesn't provide exact profitability information, I think it's safe to assume that Azure is producing a ton of profits for Microsoft. With all three legacy players making a ton of money from their cloud computing divisions, that means cloud computing can be a viable standalone business. But can CoreWeave and Nebius get to that point?
Rapid growth, but no profits
CoreWeave and Nebius are both neocloud companies -- cloud computing specialists that are focused on AI. The two have differing business models, but each has attracted major tech players including Microsoft and Meta Platforms as clients. These customers already have data centers of their own, but being able to rapidly obtain more of the computing power they need without having to build it is still an option they find valuable.
Demand from those customers and others is giving CoreWeave and Nebius jaw-dropping growth rates compared to the legacy cloud companies. In Q1, CoreWeave's revenue grew by 112% year over year while Nebius' soared by 684%.
Wall Street is also incredibly bullish on their futures. For 2026 and 2027, Wall Street analysts expect 147% and 97% revenue growth, respectively, for CoreWeave. Nebius is expected to grow even faster, with 2026's growth estimates hovering around 551% and 2027's at 224%. Still, nobody expects these two to be profitable because they're spending every bit of money they have to expand their cloud footprints. That's one of the central risks of investing in these two, but it could pay off big if they keep growing rapidly and achieve profitability.
The legacy cloud companies are still fantastic investments, but if you want greater long-term upside potential (and you're comfortable with higher risk), then Nebius and CoreWeave are solid stock picks.
Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nebius Group. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.