Amazon's second-quarter cloud revenue growth was good, but it wasn't Microsoft or Google Cloud good. And that put the tech giant on the defensive about its position in generative AI. Amazon stock retreated Friday.
"Amazon's quarter was defined by AWS growth, which was a bit disappointing as expectations heading into the print had been primed by significant growth acceleration from Microsoft Azure and Google Cloud," William Blair analysts Dylan Carden and Arjun Bhatia wrote to clients Thursday. "While AWS accelerated, its acceleration was much more modest than its peers."
Amazon Web Services grew sales a stronger-than-forecast 17.5% to $30.78 billion in the second quarter. However, it significantly lagged the 39% Azure growth for Microsoft and 32% Google Cloud growth posted by Alphabet for the same period.
Amazon is the largest provider of cloud infrastructure by market share and is working off a much larger base of sales than its two rivals. But the disparity was still enough to reignite questions about Amazon's ability to compete for generative AI cloud workloads.
Amazon stock shed 8.3% to close at 214.75 on the stock market today. It is a down day for stocks overall after a weak jobs report and new tariffs announced by President Donald Trump.
Amazon CEO: 'Still Early' For AI
Concern about AWS overshadowed the rest of Amazon's Q2 results, which showed stronger-than-expected earnings and revenue overall.
Chief Executive Andy Jassy was asked directly about Amazon's ability to compete on a conference call with analysts late Thursday.
"There is a Wall Street finance person narrative right now that AWS is falling behind in Gen AI, with concerns about share loss to peers, et cetera," Morgan Stanley analyst Brian Nowak told Jassy on the call. "What is your rebuttal to that?"
Jassy said its still "so early" for generative AI. He believes Amazon's cost advantages and large existing client base will benefit the company in the long run.
"We're at a stage right now where so much of the activity is training (AI models) and figuring out how to get your generative AI applications into production," Jassy said. "People aren't paying as close attention as they will and making sure that those generative AI applications are operating where the rest of their data and infrastructure is."
Cloud Battle: Amazon Vs. Microsoft Vs. Google
Amazon's top rival Microsoft has been boosted by an alliance with ChatGPT creator OpenAI, while Google's cloud technology is popular among startups. Meanwhile, Oracle — once seen as a cloud also-ran — has been racking up contracts from AI startups, including its own megadeal with OpenAI.
But Amazon has made plenty of AI moves to defend its turf. The tech giant has invested $8 billion in Anthropic, an OpenAI rival. AWS is developing its own custom chips to try to bring AI processing costs down for clients. Amazon's Bedrock offering allows companies to build products by plugging their own data into AI algorithms.
Still, Wall Street is hoping to see those efforts more clearly power growth at AWS.
"In the coming quarters, we expect concerns around the intermediate-term trajectory of AWS growth rate and margin could remain an overhang on shares as investors contemplate the rising perception of AWS as a laggard in the AI space," Wedbush analyst Scott Devitt wrote late Thursday. "While we understand the reaction in shares after-hours, we do not believe the company's longer-term opportunity is impaired, and our thesis remains intact."
Synergy Research Group estimates Amazon captured 30% of Q2 cloud infrastructure spending, compared to 20% for Microsoft and 13% for Google. Synergy pegged Amazon's share of the market at about 33% two years ago.
Amazon Stock Hit By AI Concerns
A big question among analysts is when they can expect Amazon's cloud growth to accelerate. Many on Wall Street are counting on that to happen in the second-half of the year, though Jassy was hesitant to commit to that idea. He said Amazon does not give guidance by segment.
"I do expect that it's going to get better each quarter, and I'm optimistic about that," he told analysts.
Jassy added that AWS has more demand than capacity right now. Amazon spent $31.4 billion in capital expenditures in the second quarter, focused on building data centers. The company said it expects to spend at a similar pace the rest of the year.
Analysts are still near unanimously bullish about Amazon. But Thursday's report marked a setback for a stock that had only just recovered from a tariff-driven slump in the spring.
"The optics of AWS's underperformance in isolation and management's commentary will make Amazon hard to defend near-term," RBC Capital Markets analyst Brad Erickson wrote to clients Thursday. "We believe in the company being able to maintain, if not accelerate, AWS growth over time, which should help restore investor faith in capitalizing on the AI opportunity. However, this was an uncharacteristic setback quarter that will take some time to recover from."
With Friday's slide, Amazon stock is trading essentially flat for 2025. Shares tumbled below Amazon's 21-day moving average before finding support above the 50-day line.
