August 2, 2025

Amazon.com experienced a significant decrease in its share price, dropping approximately 7% on Friday. This decline was largely attributed to investor concerns regarding Amazon Web Services (AWS) and its ability to keep pace with rivals Microsoft and Alphabet in the rapidly evolving artificial intelligence market. Although AWS reported a 17.5% increase in revenue for the June quarter, this figure fell short compared to Microsoft's Azure, which achieved a remarkable 39% growth, and Google's Cloud service, which saw a 32% increase. Despite AWS exceeding Wall Street revenue estimates, the disappointing performance prompted doubts about Amazon's competitive edge in cloud computing, an area where it has long been a leader. To fuel its ambitions, Amazon has invested heavily in capital expenditures, spending around $31.4 billion and projecting an even greater total of $118 billion for the year. This is a notable investment compared to its competitors, who also pledged increased spending. Microsoft and Google received favorable responses from investors as their spending on data centers and advanced technologies demonstrated a direct impact on revenue growth driven by AI. Analyst Matt Britzman of Hargreaves Lansdown commented, "The spotlight was firmly on AWS and it didn't shine as brightly as expected. While Microsoft and Alphabet have shown strong momentum in cloud growth, AWS wasn't the knockout many wanted to see." In addition to revenue concerns, AWS's margins have been affected, reaching 32.9% during the quarter, marking the lowest point since the final quarter of 2022. The decrease in margins, which contribute significantly to Amazon's overall operating income, raised further concerns about AWS's long-term viability as a profit-generating unit. In light of these factors, Amazon's management provided an operating income forecast for the current quarter that disappointingly underperformed market predictions. CEO Andy Jassy sought to reassure stakeholders during a post-earnings call, stating, "It’s still very early days in the AI race," emphasizing that AWS's larger cloud infrastructure was set to take advantage of easing AI capacity constraints in the future. Following the report, Amazon's stock, which had risen 6.7% year-to-date, was trading at $216.6, risking a potential reduction of about $170 billion in market value if the downward trend continued. Despite the challenges facing AWS, analysts have mostly remained positive about Amazon’s overall prospects; over 30 analysts raised their price targets on the stock, while only three lowered them. The median price target stands at $260, supported partly by Amazon's resilient retail performance against ongoing trade tariffs, which have negatively impacted many other retailers. Jassy noted that Amazon has not yet observed a decline in demand or significant price increases in the first half of the year, reporting that online store sales surged 11% in the second quarter, exceeding expectations. Analysts suggest that suppliers have largely absorbed the brunt of the tariffs, and much of the inventory that reported strong sales had arrived in prior shipment cycles. Michael Morton, an analyst at MoffettNathanson, remarked on the contrasting dynamics of the retail business, stating, "If Amazon's retail business was a standalone entity, it would be trading dramatically higher following the near-perfect results. However, as we all know, the success of the retail business is not what will drive Amazon's stock price in the near term." The future for Amazon hinges on the performance of AWS as it faces increasing scrutiny in the competitive cloud landscape, especially with its rivals demonstrating robust growth in the AI sector. While the retail arm provides a healthy balance for now, the evolving dynamics of technology and competition will dictate the next steps for the e-commerce giant.

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Tags: Amazon, Aws, Microsoft, Google cloud, Ai, Cloud computing, Share price,