Better AI Stock: Amazon vs. Oracle

Artificial intelligence (AI) stocks have been some of the top performers on Wall Street over the last few years. Yet, just like any other sector, they come in many different shapes and sizes.

So, let's review two of the largest and best-known AI stocks -- Oracle (ORCL -6.07%) and Amazon (AMZN -8.89%) -- and see which is the best choice for investors right now.

Image source: Getty Images.

Oracle

As the AI revolution has gained steam, so has Oracle's stock. After years of lagging behind the top dogs in the technology sector -- and the market as a whole -- the shares have sprung to life in the past three years.

Indeed, at the time of this writing, Oracle is up 79% compared to 26% for the S&P 500 over the last three years.

ORCL data by YCharts.

The reason for this surge is simple: AI data center demand. As one of the leading providers of cloud data centers, the company has risen to meet the high computing requirements brought on by the growing demand for AI training, inference, and deployment.

As a result, the business' sluggish revenue growth has picked up. In its most recent quarter (ending on Feb. 28), total revenue jumped 6% year over year to $14.1 billion, led by 10% growth in its cloud services revenue.

While this 6% revenue growth is down from the strong double-digit gain Oracle recorded in 2023, it remains above the company's 10-year average of 4%.

ORCL Operating Revenue (Quarterly YoY Growth) data by YCharts.

What's more, the company continues to invest heavily in new data centers, aiming to build on its market share within the cloud services sector and perhaps with the long-term goal of challenging the big three within the cloud services space (Amazon, Microsoft, and Alphabet's Google).

At any rate, the bull case revolves around steadily increasing AI data center demand, which leads to higher revenue growth that would justify its price-to-earnings ratio (P/E) of 34 and its significant capital expenditures on new data center construction.

In a nutshell, Oracle is an excellent stock for investors who are bullish on AI demand and want to focus on data center growth.

Amazon

Whereas Oracle stock represents an almost pure play on AI-driven data center growth, Amazon is a more diversified AI stock.

First, it's the largest cloud services company, thanks to its Amazon Web Services (AWS) division. AWS alone generates over $100 billion in annual revenue and, according to data compiled by Statista, holds a 30% share of the global cloud services market compared to only 3% for Oracle.

Yet, Amazon has even more AI fuel in the tank. In addition to its cloud services business, it is developing its own AI chips. These chips, known as Trainium, will be used for training and inference for AWS, ideally reducing costs and lowering reliance on suppliers like Nvidia.

And management has invested $8 billion in Anthropic, a start-up focused on developing AI solutions like its Claude AI assistant. Research or breakthroughs developed at Anthropic could find their way into Amazon operations, similar to the way Microsoft has integrated ChatGPT into some of its products.

Lastly, Amazon's massive e-commerce business presents many opportunities for the company to leverage AI to generate efficiencies and cost savings that could improve its bottom line. Whether it's improved inventory management, cheaper shipping routes, or personalized advertising, it could leverage AI to make its business more profitable.

In summary, Amazon is an AI conglomerate that is pursuing multiple pathways when it comes to the AI boom. While data center growth remains an important factor, it is far from the only way that the company will benefit from AI in the future.

Which is the better AI stock: Oracle or Amazon?

In a nutshell, this decision comes down to the individual investor. For those with a narrow focus on data-center growth driven by AI, Oracle may be the better choice. However, Amazon, with all of its diversified AI initiatives, may be the better choice for investors with a broader thesis.

While both stocks remain intriguing, I lean toward Amazon, given its more comprehensive size and scale.