Amazon's Cloud Computing Growth Lags Behind Rivals Amid AI Race

Reviewed byNidhi Govil

19 Sources

Amazon's cloud computing unit, AWS, reported slower growth compared to rivals Microsoft and Google, raising concerns about its position in the AI race. The company's shares tumbled as investors reacted to the underwhelming performance.

Amazon's Cloud Computing Growth Falls Short of Expectations

Amazon.com's cloud computing unit, Amazon Web Services (AWS), reported a 17.5% increase in revenue for the second quarter of 2025, falling short of investor expectations and lagging behind its major competitors in the artificial intelligence (AI) race 1. This disappointing performance led to a significant drop in Amazon's share price, with the stock tumbling 8% following the announcement 1.

Source: Benzinga

Source: Benzinga

Competitive Landscape in Cloud Computing

While AWS has long been the market leader in cloud computing, its growth rate of 17.5% was significantly outpaced by Microsoft Azure's 39% growth and Google Cloud's 32% gain 1. This disparity has raised concerns among investors about AWS's ability to maintain its dominant position in the rapidly evolving AI-driven cloud market 3.

Financial Impact and Investor Reaction

The underwhelming performance of AWS had a significant impact on Amazon's overall financial outlook:

  1. AWS margins contracted to 32.9% during the quarter, their lowest level since the final quarter of 2023 1.
  2. Amazon's current-quarter total operating income forecast was lower than market estimates 1.
  3. The stock drop was set to erase around $190 billion from Amazon's market value 1.

Investment in AI Infrastructure

Source: New York Post

Source: New York Post

Despite the disappointing results, Amazon has been investing heavily in AI infrastructure:

  1. The company spent $31.4 billion in capital expenditure during the quarter, more than its rivals 1.
  2. Amazon projected it would spend a more-than-estimated $118 billion for the year on infrastructure and AI development 1.

Retail Business Performance

While the focus was on AWS's performance, Amazon's retail business showed resilience:

  1. Online store sales jumped a better-than-expected 11% in the second quarter 1.
  2. The company has not yet seen a drop in demand or a notable rise in prices due to tariffs 1.
Source: Reuters

Source: Reuters

Future Outlook and Challenges

Amazon CEO Andy Jassy emphasized that it was still "very early days" in the AI race and expressed confidence in AWS's ability to perform well once AI capacity constraints ease 1. However, analysts have raised concerns about the lack of a strong AI model from AWS, suggesting that the company could be trailing behind rivals in AI development 2.

As the AI race intensifies, Amazon faces the challenge of maintaining its market position while justifying its massive investments in infrastructure. The company's ability to innovate and capitalize on the growing demand for AI services will be crucial in determining its future success in the cloud computing market.

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