Amazon.com (AMZN-Q) shares fell 7 per cent on Friday, after growth in its cloud computing unit failed to impress investors, in contrast to the robust gains reported by AI-focused rivals Alphabet (GOOGL-Q) and Microsoft (MSFT-Q).
Amazon Web Services represents a small part of Amazon’s total revenue, but it is a key driver of profit, typically accounting for about 60 per cent of the company’s overall operating income.
“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
While AWS reported a 17.5-per-cent increase in revenue during the second quarter, sales for Microsoft’s Azure jumped 39 per cent and Google Cloud gained 32 per cent. Profit margin of the Amazon division also contracted.
Big Tech has faced intense scrutiny from investors over the estimated US$330-billion AI spend this year before the latest earnings, with Microsoft on track to potentially outspend its rivals over the next year.
Amazon said its core retail business has largely remained shielded from U.S. President Donald Trump’s tariffs, which have forced many retailers and consumer goods firms to seek ways to protect margins without dampening demand.
“Through the first half of the year, we haven’t yet seen diminishing demand nor prices meaningfully appreciating,” CEO Andy Jassy said on a call with analysts, adding the company was unsure of the tariff trajectory moving forward, especially in China.
“Thus far, we believe that manufacturers and suppliers are bearing the brunt of the tariff impact,” but the bulk of inventory Amazon sold in Q2 was inbound in Q1, suggesting some room for tariff uncertainty ahead, J.P.Morgan strategists said in a note.
Amazon’s 12-month forward price-to-earnings ratio was at 33.87, compared with Microsoft’s 34.19 and Alphabet’s 18.64, according to data compiled by LSEG.
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