Shares of Amazon.com dropped by more than 8.6% in premarket trading on Friday, as investors responded with concern to the company’s second-quarter results, which showed cloud computing unit Amazon Web Services (AWS) growing slower than key rivals Microsoft and Google.
The reaction comes despite Amazon’s stronger-than-expected profits and relatively upbeat outlook.
AWS, a crucial pillar of Amazon’s profit engine, saw revenue rise 17.5% year-on-year to $30.87 billion for the quarter.
While the growth rate marked an acceleration from earlier quarters, it fell short of the rapid cloud gains posted by competitors.
Microsoft’s Azure unit reported a 39% jump in sales, and Google Cloud rose 32%, both significantly outpacing AWS.
The result disappointed investors hoping Amazon would ride the wave of artificial intelligence-driven cloud demand with equal momentum.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, noted the pressure on AWS to perform amid heightened expectations.
“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now,” he said.
When asked about AWS growth during the company’s earnings call, Amazon CEO Andy Jassy emphasised that “we have a meaningfully larger business in the AWS segment than others.”
Profit outlook subdued than expected considering high AI spending
Amazon guided for operating profit between $15.5 billion and $20.5 billion in the third quarter compared with $17.4 billion a year earlier.
Dan Coatsworth of AJ Bell said the profit guidance is more subdued than expected as Amazon is spending big on AI infrastructure, viewing it critical for long-term competitiveness but which also adds near-term costs.
Coatsworth also pointed out that while Amazon remains profitable and dominant in e-commerce, investors are increasingly focused on the pace of its cloud expansion and the returns on AI spending.
“Competition remains fierce for cloud computing services and Amazon’s sales growth rate is struggling to match rivals Microsoft and Alphabet,” he wrote in a note.
Tariff uncertainty adds to investor jitters
Another emerging concern is the potential impact of US tariffs, particularly under the trade policy direction of President Donald Trump.
Amazon executives said the company’s retail operations had so far been shielded from major fallout, but noted that much of the inventory sold during the quarter had been imported earlier in the year, ahead of possible tariff hikes.
“Through the first half of the year, we haven’t yet seen diminishing demand nor prices meaningfully appreciating,” CEO Andy Jassy said on a call with analysts, adding the company was unsure of the tariff trajectory moving forward, especially in China.
JPMorgan analysts added that suppliers, not Amazon, may have borne most of the tariff pressure so far, but room for volatility remains.
Valuation holds, but sentiment wavers
Amazon’s valuation remains elevated, with a forward price-to-earnings ratio of 33.87 — close to Microsoft’s 34.19 and significantly above Alphabet’s 18.64.
But the stock’s sharp premarket slide shows that investors are growing more sensitive to execution risks, especially in the context of the AI-driven cloud race.
Amazon stock closed Thursday at $234.11, up 1.7%, before sliding to $216.02 in Friday’s premarket session.
Whether the company can reignite confidence in AWS as the backbone of its AI future will likely define its market trajectory in the quarters ahead.
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