Amazon (AMZN) is playing catch-up in the AI arms race.
Though the company’s recent earnings met Wall Street’s expectations, investors are concerned about growth in its cloud division, AWS. Its revenue increased 17.5% year over year to $30.9 billion, roughly in line with the 17% to 19% pace seen over the past three quarters.
In its most recent quarters, Microsoft (MSFT) Azure clocked a 26% jump to $29.9 billion, and Google (GOOG) Cloud grew 32% to $13.6 billion.
Amazon’s stock is under pressure as concerns mount that the company is losing market share to its rivals, even as it ramps up its AI investments. Shares dropped 8% last week, compared to a 2% pop for Microsoft.
AWS’s revenue growth rate in recent quarters has leveled off in the high teens, following a period of faster expansion. Maxim Group analyst Tom Forte said Microsoft, through its OpenAI (OPAI.PVT) partnership, is capturing a significant share of the generative AI market, a key driver for cloud services. Amazon has invested in Anthropic, a promising but much smaller competitor.
However, “Amazon has the bigger business, so it’s not surprising that Microsoft’s growth rate is faster, given its smaller size,” Forte told Yahoo Finance.
RBC Capital analyst Brad Erickson suggested that as more developers shift to platforms other than OpenAI, Amazon could benefit. Unlike competitors, Amazon Bedrock offers multiple AI foundation models, which could attract developers looking for a more open environment.
Amazon shelled out $31 billion in capital spending in Q2, up from $24.3 billion in Q1. The investment into AI chips, data centers, and infrastructure hasn’t yet proportionally translated into growth at AWS.
Supply chain constraints are playing a role. On its Q2 earnings call, CEO Andy Jassy said AWS is facing more demand than it currently has the capacity to handle, citing power constraints and server production delays as key bottlenecks.
But analysts say the bigger issue is timing. Customers appear to be testing AI tools but not scaling them aggressively, reflected in weak backlog growth. This suggests demand is building yet not skyrocketing.
Additionally, AWS’s revenue can be volatile partly due to its startup customers, Forte noted. Startup spending fluctuates widely based on funding cycles and growth stages, meaning AWS’s growth isn’t always steady as the company builds capacity for more consistent, large-scale enterprise demand.
Forte argued the market may be underestimating Amazon’s long-term strategy to build AWS’s growth through AI-driven services. Analysts remain optimistic about the cloud business’s long-term prospects but caution that overcoming infrastructure challenges and turning heaving capital expenditures into visible growth will require time and more cash.
