Oracle vs. Alphabet: Which Is the Better AI Cloud Stock to Own for the Next 5 Years?

There’s a growing list of technology companies investing heavily in artificial intelligence (AI) cloud computing as demand for compute capacity accelerates. Bank of America estimates that data center infrastructure spending will more than double to $2.1 trillion by 2028.

But not every company that’s spending money now on AI cloud computing will have substantial sales and earnings to show for it later.

Alphabet (GOOGL -2.20%) (GOOG -1.93%) and Oracle (ORCL -6.93%) are two prominent cloud companies ramping up their AI investments right now. Still, while Alphabet’s cloud sales are accelerating due to its spending, Oracle’s debt is worrying shareholders.

Investors wondering which is the better AI cloud stock to own over the next five years need only look at Google Cloud’s third-quarter sales doubling for their answer. Here’s why Alphabet is the safer long-term bet.

Image source: Getty Images.

Alphabet’s AI spending is accelerating, but so is revenue

Alphabet stock fell hard recently amid investor concerns about its high capital expenditures, which are expected to reach up to $205 billion this year. The spending has resulted in $9.1 billion in negative free cash flow, worrying many Alphabet shareholders.

But investors seemed to misunderstand two factors: First, $5.1 billion of the negative free cash flow was from a one-time fee to the European Commission, making the decline not as bad as it first appears. The second is that Alphabet’s AI spending already appears to be paying off amid rising Google Cloud sales.

Consider that Google Cloud sales more than doubled in the third quarter (which ended Sept. 30) to $30.7 billion. That’s an exceptionally high growth rate and shows why the company’s capex is rising so quickly.

Rising demand for computing capacity is encouraging Alphabet to ramp up spending, and as expensive as it is, demand appears to continue outpacing capacity. The company said Google Cloud has a $561 billion cloud backlog, which it estimates will convert to sales over the next 24 months.

Negative free cash flow isn’t great to see, I’ll admit. But the company can always pull back spending once it has enough compute capacity. And when it does, its soaring cloud sales will likely help bring the company’s free cash flow back into positive territory — especially considering that Google Cloud’s operating income recently tripled to $11 billion and operating margins have increased to 36%.

GOOGL – Alphabet

$282.57-$6.36 (-2.20%)

NASDAQ · As of 4:00 PM ET 11/05/26

Oracle is making a riskier AI bet

Oracle is also investing heavily in data center infrastructure, with management saying that capital expenditures will total up to $95 billion this year. That’s up from $55.7 billion in fiscal 2026.

Investors have been skeptical about Oracle’s accelerating spending, and they really haven’t liked how the company is paying for it by taking on debt. To ease concerns, leadership recently said it would limit its capital raises through fiscal 2030 to an additional $20 billion (on top of an additional $20 billion raised recently).

While that temporarily eased investor fears, they came roaring back just days later when Oracle announced it would raise all of that $20 billion immediately rather than over the next few years. Oracle has about $169 billion in total debt, which has spooked investors and resulted in Oracle’s stock falling 50% over the past year.

It may not be all bad news for Oracle investors, though, as management says free cash flow could be $30 billion or more in fiscal 2029 — a stark contrast to its negative free cash flow of $23.7 billion in fiscal 2026.

If you feel comfortable with some additional risk, Oracle stock could be a good investment as the company’s spending slows and free cash flow rebounds over the next couple of years.

But I think Alphabet looks like the better AI cloud stock over the next five years. It’s already the third-largest cloud player and is poised to generate significant sales from its massive Google Cloud backlog.

Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.