Amazon and Microsoft to spend $400B on AI infrastructure in 2026

Amazon and Microsoft are each on track to spend approximately $200 billion in 2026 building data centers and AI infrastructure—an unprecedented level of investment that has investors questioning when they'll see returns, according to Fortune.

The spending represents a dramatic escalation in the cloud computing rivalry between the two tech giants, who together control nearly half the global cloud market. Amazon Web Services holds a 28% market share while Microsoft Azure commands 21%, with Google Cloud trailing at 12-14%.

Investor sentiment around these massive expenditures turned negative last week when Alphabet's stock dropped 7% after the company raised its capital spending projections and reported negative free cash flow. Microsoft reports quarterly earnings Wednesday, followed by Amazon on Thursday, with analysts closely watching for signs that the spending will translate into revenue growth.

Why it matters

The scale of investment—$400 billion combined between just two companies in a single year—reflects how critical AI infrastructure has become to maintaining competitive position in cloud computing. But it also signals a potential inflection point where investors may no longer accept spending increases without clearer timelines for profitability. The earnings reports this week will test whether the market's patience extends to the cloud leaders or if they'll face the same skepticism that hit Alphabet.

Different strengths, similar scale

AWS is expected to reach $168 billion in net sales in 2026, up from $128.7 billion last year, with a 93.8% gross margin. The business has a backlog of signed customer contracts worth $364 billion, excluding a recent $100 billion deal with Anthropic.

Microsoft's Azure and other cloud services are projected to hit $148.9 billion in fiscal 2027, representing roughly 40% growth. While growing from a smaller base, Azure's pace is slightly faster than AWS. Microsoft's Intelligent Cloud business operates at an estimated 47% operating margin compared to AWS's 35%, though Microsoft's figure includes higher-margin legacy server software.

Melissa Otto, global head of Visible Alpha research at S&P Global, describes the two as "frenemies" rather than pure competitors. AWS offers flexible, customizable platforms ideal for startups and large machine learning workloads, while Azure extends Microsoft software that enterprises already use, making adoption easier. Customers often end up buying both.

Funding the buildout

Amazon's free cash flow dropped to $1.2 billion over the past 12 months from $25.9 billion a year earlier, and the company more than doubled its bond debt to over $120 billion. Microsoft is funding its roughly $35 billion quarterly buildout from operating cash flow without issuing new bonds, maintaining $73 billion in free cash flow for the 12 months ending in March.

Amazon CEO Andy Jassy told shareholders that AWS spending is largely committed, with much of the 2026 capital expenditure already backed by customer contracts. "We're not investing approximately $200 billion in capex in 2026 on a hunch," Jassy wrote in his annual shareholder letter.

Microsoft CEO Satya Nadella defended the spending strategy at a Morgan Stanley conference in March, noting that when he became CEO, critics questioned whether Microsoft was too late to compete in public cloud. His confidence now rests on diverse customers, strong utilization, and what he calls a "multi-generation total cost of ownership curve."

Matt Wood, AWS's chief AI and technology officer, compared the current moment to the early internet when only a few websites existed. "We're going to have millions of them, just like we have millions of websites today," Wood told Fortune.

Luke Rahbari, CEO of Equity Armor Investments, said capital allocation itself has become competitive. "Whoever controls the money controls the winners," Rahbari said. "You've got to soak up as much money as you can so there isn't as much money available to other players."

The details were first reported by Fortune.