Amazon’s cloud computing business, AWS, has once again missed revenue projections, marking the slowest growth in five quarters. For the first quarter of 2025, AWS reported a 16.9% year-over-year increase, totaling $29.27 billion. This result fell slightly short of the expected 17.4% growth and $30.9 billion in sales. The slowdown comes as rival companies like Microsoft and Google continue to outperform in the cloud space.
AWS Misses Expectations Amid Stronger Competitor Results
While Amazon’s overall revenue for the first quarter reached $155.7 billion—slightly above expectations—the performance of AWS dominated investor concerns. Analysts had anticipated a stronger performance from AWS following Microsoft’s recent earnings, which showed a 33% growth in Azure’s revenue. In response to Amazon’s underwhelming cloud results, the company’s stock initially dipped by as much as 5% in after-hours trading before recovering slightly to a 1% decline.
AWS’s shortfall also highlights a growing trend where Microsoft’s cloud unit is pulling ahead, especially as Azure continues to benefit from significant investments in AI infrastructure. This trend puts pressure on Amazon, which has traditionally led the cloud industry but now faces stiffer competition in a rapidly evolving market.
Amazon’s Broader Outlook and Tariff Concerns
Despite the AWS revenue miss, Amazon’s CEO, Andy Jassy, addressed concerns related to rising US tariffs on Chinese goods. According to Jassy, the company has yet to see a noticeable drop in demand but noted an increase in buying activity within specific product categories, which suggests that consumers and sellers are bracing for potential price hikes. He added that, although average selling prices for retail products have not yet risen significantly, Amazon continues to guide third-party sellers to move inventory to the US ahead of potential tariff-related disruptions.
In contrast to cloud services, Amazon’s third-party seller services saw a 7% revenue growth in the quarter, though this was slower compared to previous periods. On a more positive note, Amazon’s online advertising business showed a 19% increase, reaching $13.92 billion and surpassing expectations. This success has helped position Amazon as one of the top advertising platforms, trailing only Meta and Alphabet.
Microsoft and Alphabet Report Strong Cloud and AI Growth
While Amazon’s cloud performance faltered, Microsoft delivered a strong earnings report, underscoring its continued dominance in cloud services. Microsoft’s total revenue for the quarter reached $70.07 billion, surpassing the forecast of $68.42 billion. Its cloud business, including Azure, posted a remarkable 33% growth, with AI services contributing significantly to this expansion. Microsoft has projected Azure will continue growing between 34% and 35% in the next quarter, as demand for AI infrastructure remains robust.
Microsoft’s capital spending also surged, with $16.75 billion invested—a 53% year-over-year increase—driven largely by its AI expansion. The company expects AI infrastructure demand to continue outpacing supply, creating potential capacity constraints in the near future.
Google’s parent company, Alphabet, also reported strong results, with first-quarter revenue reaching $90.23 billion—up 12% from the previous year. Google Cloud posted a 28% revenue increase to $12.26 billion, narrowly missing projections. Despite this, Google Cloud’s margins improved significantly, growing from 9.4% last year to 17.8% this quarter. Alphabet’s advertising business remained the primary revenue driver, with YouTube ad revenue hitting $8.93 billion.
Alphabet is also investing heavily in AI, with its generative AI search tool, Google AI Overviews, now reaching 1.5 billion users monthly. These investments show the growing importance of AI in driving revenue and growth for the company.
The Shift Toward AI-Driven Cloud Services
All three companies—Amazon, Microsoft, and Alphabet—are prioritizing AI infrastructure as a key area of growth, with Microsoft and Google leading the charge in integrating AI into their cloud offerings. While Amazon continues to expand its retail and advertising businesses, its cloud division faces increasing competition as other tech giants ramp up their AI and cloud investments.
As cloud services evolve, AI-driven solutions are becoming the centerpiece of the industry’s growth. Microsoft and Alphabet’s strong performance in cloud and AI reflects the increasing importance of these technologies for businesses and consumers alike. However, Amazon’s challenges in keeping pace with competitors in the cloud market highlight the need for continued innovation and strategic focus if it hopes to maintain its leadership in the space.
Conclusion: A Competitive Cloud Market
The cloud landscape is rapidly shifting, with Amazon facing more competition than ever. While AWS remains a dominant force, its slower growth compared to Microsoft and Alphabet raises questions about its ability to sustain its lead. The increasing reliance on AI and the push for more localized services mean that companies like Amazon will need to adapt quickly to remain competitive in an increasingly crowded and dynamic market.
