Amazon stock fall accelerated by 7% on Friday after its cloud unit’s performance lagged behind Microsoft and Alphabet, raising concerns over its standing in the AI-driven cloud market.
The tech giant reported its second-quarter earnings on Thursday, narrowly beating revenue expectations for Amazon Web Services (AWS), but still trailing the rapid growth reported by its main competitors. This triggered a wave of investor concern, leading to a significant decline in Amazon’s market valuation.
AWS Falls Short Amid Industry AI Acceleration
Amazon Web Services, historically the market leader in cloud computing, reported a 17.5% year-over-year increase in revenue for the June quarter. While the figure slightly exceeded analyst estimates, it significantly underperformed compared to Microsoft Azure’s 39% growth and Google Cloud’s 32% expansion during the same period.
Despite Amazon’s aggressive capital expenditure—$31.4 billion in the quarter and a projected $118 billion for the full year—investors were underwhelmed by AWS’s relative performance. In contrast, Microsoft and Alphabet have seen their AI investments translate into noticeable gains, with the market rewarding them accordingly.
Analysts believe Amazon’s heavy infrastructure spending, particularly in datacenters and specialized chips, has yet to yield tangible benefits in the AI race. “The spotlight was firmly on AWS and it didn’t quite shine as brightly as expected,” noted Matt Britzman, senior equity analyst at Hargreaves Lansdown. “While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see.”
Margin Pressure and Soft Guidance Raise Additional Concerns
AWS’s profitability also came under pressure, with its operating margin shrinking to 32.9%—its lowest level since late 2023. This erosion in margins comes despite AWS contributing approximately 60% of Amazon’s total operating income, underlining its importance to the company’s financial performance.
Compounding investor concerns and contributing further to the Amazon stock fall, Amazon issued guidance for the current quarter’s total operating income that came in below market expectations. CEO Andy Jassy acknowledged these issues during a post-earnings call, suggesting that the AI opportunity remains in its infancy and that Amazon is well-positioned to benefit once infrastructure constraints are resolved.
Despite the reassurances, Amazon’s stock price fell to $216.20 in late Friday morning trading, wiping out nearly $170 billion in market capitalization. Year-to-date, the stock is down 1.5%, a sharp contrast to the upward momentum seen in other major tech names. The Amazon stock fall is also amplified by investor comparison to better-performing rivals.
Amazon still trades at a relatively high premium, with a forward 12-month price-to-earnings (P/E) ratio of 33.87. This is comparable to Microsoft’s 34.19 but significantly higher than Alphabet’s 18.64, according to data compiled by LSEG.
Retail Division Provides a Silver Lining
While AWS may be underperforming, Amazon’s retail segment has remained a bright spot. Online store sales rose 11% in the second quarter, exceeding expectations. Notably, this growth comes despite the ongoing tariff pressures that have disrupted supply chains and impacted many U.S. retailers.
CEO Jassy remarked that consumer demand and pricing have remained stable so far in 2025, attributing resilience to strong inventory management and preemptive stockpiling. Analysts observed that much of the inventory sold in the second quarter was procured in the previous three months, helping Amazon avoid the brunt of recent tariff impacts.
Amid the mixed performance and the recent Amazon stock fall, at least 30 analysts raised their price targets for Amazon stock, while only three revised their forecasts downward. The median price target now stands at $260, signaling continued long-term confidence in the company’s fundamentals.
As Amazon navigates the dual challenges of fierce AI competition and macroeconomic headwinds, the performance of both AWS and its retail division will remain key indicators for investors assessing the company’s trajectory.
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