Why Amazon and Microsoft Are the Undervalued Powerhouses in the AI Infrastructure Race

The global AI infrastructure market is undergoing a seismic shift, driven by enterprises transitioning from experimental AI projects to large-scale implementation. In Q3 2025, global spending on cloud infrastructure services surged to $102.6 billion, a 25% year-on-year increase, with Amazon Web Services (AWS), Microsoft Azure, and Google Cloud collectively dominating 66% of the market. While Google Cloud has shown robust growth, Amazon and Microsoft remain uniquely positioned to capitalize on long-term profitability through strategic investments in AI-driven cloud infrastructure. Despite skepticism from some analysts, their aggressive capital expenditures, exclusive partnerships, and ecosystem integration suggest these tech giants are undervalued in the context of their AI ambitions.

Amazon: Scaling AI Capabilities with Strategic Partnerships and Infrastructure Overhaul

Amazon's AWS maintains the largest cloud market share at 32% in Q3 2025, but its dominance is being challenged by Microsoft's rapid expansion. However, Amazon's recent moves signal a deliberate focus on securing its leadership in AI. The company is reportedly investing $10 billion in OpenAI, a partnership that could enhance its AI capabilities and counter Microsoft's dominance in the AI ecosystem. Additionally, Amazon has unveiled "Project Rainier," a $11 billion AI data center leveraging 500,000 custom Trainium2 chips and the Anthropic chatbot. This infrastructure, combined with a $125 billion capital expenditure plan for 2025, underscores Amazon's commitment to scaling AI workloads.

AWS's AI services already contribute $2 billion in revenue, and its backlog of $195 billion indicates strong future demand. Analysts argue that Amazon is compressing short-term margins to fund a long-term AI investment cycle, with margin expansion expected by late 2026. The company's AI-driven improvements in retail efficiency, logistics automation, and advertising projected to reach a $70–80 billion annualized run rate by late 2025 further position it for sustained, high-margin growth.

Microsoft: Embedding AI into Every Layer of Its Ecosystem

Microsoft's Azure has emerged as a formidable competitor, with a 22% cloud market share and 40% year-over-year revenue growth in Q3 2025. The company's strategic investments, including a $250 billion contract with OpenAI for Azure services, create a near-exclusive pipeline for AI-driven revenue through 2030. This partnership, coupled with Azure's 39% year-over-year growth in AI infrastructure and inference services, highlights Microsoft's ability to monetize AI at scale.

Microsoft's capital expenditures for FY 2025 are projected at $80 billion, with over half allocated to the U.S. to build AI-enabled datacenters. These investments are not just about capacity but also about embedding AI into its broader ecosystem. For instance, Azure AI services, Copilot features in Office 365, and Dynamics applications are creating a flywheel effect, where AI enhances productivity and drives further adoption. Analysts project Microsoft's intelligent cloud revenue to grow by 28.3% year-over-year in Q1 2026, driven by Azure's AI capabilities.

Addressing the Undervaluation Argument: Long-Term Profitability vs. Short-Term Skepticism

While Amazon and Microsoft face criticism over the economics of AI infrastructure- such as Alex Haissl's concerns about lower returns and overbuilding-their long-term strategies suggest these risks are being mitigated. For example, Amazon's $8 billion investment in Anthropic and Microsoft's exclusive OpenAI partnership lock in future revenue streams that are not yet reflected in current financials. Additionally, both companies are leveraging AI to reduce operational costs: Amazon's AI-driven logistics automation and Microsoft's AI-optimized datacenters are expected to improve margins over time.

Analysts remain divided. Some, like those at Yahoo Finance, argue that Amazon's stock could rise 28% as AI investments pay off by late 2026, while others caution about the capital intensity of AI projects. However, the sheer scale of their infrastructure backlogs- AWS's $195 billion and Microsoft's $157.7 billion-indicates that demand is outpacing supply, creating a structural advantage.

Conclusion: Strategic Positioning for the AI-Driven Future

Amazon and Microsoft are not just competing in the AI infrastructure race; they are shaping its trajectory. Their investments in custom chips, exclusive partnerships, and ecosystem integration position them to dominate the next phase of cloud computing. While short-term concerns about ROI persist, the long-term profitability of AI-driven workloads-spanning enterprise AI agents, multi-model deployment, and automation-suggests these companies are undervalued relative to their strategic assets. As enterprises increasingly prioritize AI infrastructure that supports real-world AI agent operations, Amazon and Microsoft's first-mover advantages in cloud and AI will likely translate into outsized returns for investors.