Amazon shares fell nearly 8 percent in early trading on Friday after the company’s cloud computing division, Amazon Web Services (AWS), reported growth that failed to meet investor expectations. This comes in contrast to the strong performances by AI-focused rivals, who posted more robust gains in their cloud segments.
AWS, though a smaller part of Amazon’s overall revenue, plays a crucial role in the company’s profitability, typically contributing around 60 percent of its operating income. In the second quarter, AWS posted a 17.5 percent increase in revenue, which fell short when compared to Microsoft Azure’s 39 percent jump and Google Cloud’s 32 percent rise. AWS also saw a contraction in profit margins.
“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS was not the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now,” said Matt Britzman, a senior equity analyst at a global financial firm.
Investors have been watching Big Tech closely amid projections that companies will collectively spend over $330 billion on AI this year. Microsoft is expected to lead that spending, potentially outpacing its competitors.
On the retail front, Amazon said it has mostly avoided the direct impact of tariffs imposed under US President Donald Trump. However, future uncertainty remains. “Through the first half of the year, we have not yet seen diminishing demand nor prices meaningfully appreciating,” said CEO Andy Jassy. He added that the company remains unsure about how tariffs, particularly those related to China, will evolve.
Analysts noted that most of Amazon’s second-quarter inventory arrived in the first quarter, leaving room for potential tariff-related challenges ahead. “Thus far, we believe that manufacturers and suppliers are bearing the brunt of the tariff impact,” said strategists in a recent note.
As of now, Amazon’s 12-month forward price-to-earnings ratio stands at 33.87, compared with Microsoft’s 34.19 and Alphabet’s 18.64, based on recent market data.
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