Amazon and Alphabet Bet Big on AI. Why History Says It's Time to Buy Both Stocks

The AI revolution isn’t just shaping the future—it’s reshaping corporate balance sheets today. Amazon (AMZN) and Alphabet (GOOGL) are pouring billions into artificial intelligence infrastructure, betting that their long-term investments will outpace short-term financial hurdles. While both stocks have faced headwinds in early 2025, their strategic moves mirror past innovations that turned into decades-long growth engines. Here’s why history—and hard data—suggest now is the time to buy.

The AI Arms Race: Capex as a Growth Catalyst

Both companies are doubling down on AI hardware and data centers, with Amazon pledging $100 billion in 2025 capex and Alphabet reaffirming its $75 billion target. These investments echo Amazon’s early bets on AWS, which transformed it from an e-commerce player into a cloud computing titan.

Amazon’s Trainium2 chip, offering a 30–40% better price-to-performance ratio than GPUs, and Alphabet’s Ironwood TPU (3,600x faster than its first-gen chip) are key to cutting costs and accelerating inference tasks. Alphabet’s partnership with OpenAI’s $500 billion Project Stargate further underscores its ambition, even if the exact role remains unclear.

Financials: Growth Amid Growing Pains

While Q1 2025 guidance disappointed investors, the fundamentals remain robust.

Amazon’s Q4 2024 results showed 10% revenue growth to $187.8 billion, with AWS surging 19% to $28.8 billion and advertising jumping 18%. Net income nearly doubled to $20 billion, driven by margin improvements (11.3% vs. 7.8% in 2023). Yet Q1 guidance fell short of expectations, with revenue projected at $151–155.5 billion due to forex headwinds and supply chain bottlenecks.

Alphabet’s Q4 results were equally strong: Google Cloud grew 30% to $12 billion, powered by AI tools like Gemini 2.5. Search revenue hit $54 billion (+13%), while YouTube ads rose 14%. However, Q1 2025 forecasts face forex drag and fewer trading days, pressuring growth.

Why the Dip Is an Opportunity

The market has punished these stocks for near-term challenges: Amazon’s shares fell 4% post-earnings, while Alphabet’s declined 19.2% YTD through Q1. Yet these drops may overstate risks.

Consider AWS’s slowing growth (19% Q1 guidance vs. Azure’s 31%). While concerning, AWS remains the cloud leader, and Alphabet’s Google Cloud is catching up, with operating income jumping 142% to $2.1 billion in Q4. Alphabet’s $32 billion acquisition of cloud security firm Wiz and Oracle’s database service on Google Cloud signal strategic momentum.

Risks and Resilience

Both face execution risks: Amazon’s chip shortages and power constraints could delay AI scaling, while Alphabet grapples with Azure’s dominance and forex volatility. President Trump’s tariffs have also clouded global trade, hitting margins.

But history favors patient investors. Amazon’s AWS, launched in 2006, took years to turn profitable but now generates $120 billion annually. Alphabet’s cloud turnaround—operating income up 142% in Q4—mirrors this trajectory.

The Bottom Line: Buy the Dips, Bet on the Future

Despite Q1 2025 headwinds, Amazon and Alphabet are structurally positioned to dominate AI’s next phase. Their capex-heavy models, proven track records in scaling tech, and AI chip advancements align with past innovations that fueled decades of growth.

Amazon trades at a forward P/E of 25, below its five-year average, while Alphabet’s P/E of 20 offers further upside. With Alphabet’s Q4 Cloud WAN launch and quantum computing advances (Willow chip) and Amazon’s cost-cutting driving margin improvements, these stocks could rebound sharply as AI adoption accelerates.

Final Take: The AI race isn’t a sprint—it’s a marathon. Amazon and Alphabet have the infrastructure, cash flow, and strategic vision to win. Investors who buy now, despite short-term noise, may be rewarded as these bets pay off in the coming decade.