AWS reports 17.5% growth, fails to impress investors

In a normal year, Amazon's second-quarter results showing double-digit revenue growth for its cloud business would have been cause for celebration. But after cloud competitors Google and Microsoft posted bigger artificial intelligence-fueled gains, investors were left wanting more.

AWS on Thursday reported revenue of $30.9 billion, an increase of 17.5% year over year -- beating expectations. But profit margins were 32.9% in Q2, down from 39.5% in the first quarter.

Wall Street -- still hungover from Microsoft's Q4 report showing 39% Azure revenue growth on the year -- wanted to see more from AWS. Google also showed strong results, with cloud revenue climbing 32%. Amazon stock fell nearly 8% by midday Friday, to $215.94 per share.

The hyperscaler competitors have been locked in a data center investment race to meet AI demand. The companies have promised billions of dollars in infrastructure investments to prop up cloud offerings.

Amazon indicated that it would spend $100 billion in 2025, mostly for AWS cloud and AI capabilities. Google has promised to spend $85 billion on data centers, while Microsoft expects to spend $80 billion. Facebook parent Meta is looking to lay out up to $72 billion on AI infrastructure in 2025.

During a conference call Thursday night, Amazon CEO Andy Jassy acknowledged that AWS capacity constraints might be holding back further revenue gains. "We have more demand than capacity right now," he said. "We could be doing more revenue and helping customers more, and we are working very hard on changing that outcome. ... I do expect that it's going to get better each quarter."

Google and Microsoft might be gaining ground, but AWS is still the cloud market leader, with a market share of around 32%.

Steven Dickens, CEO and analyst at HyperFrame Research, said the market's response to the earnings report might be shortsighted. "There's a lot of large numbers out there, and we just throw those numbers around," he said. "But for AI workloads, it's becoming very clear that it's a race of the Big Three with Microsoft, Google and AWS ... maybe throw in Oracle as well. I think we'll see flip-flops between those four for the next three or four years."

Shane Snider, a veteran journalist with more than 20 years of experience, covers IT infrastructure at Informa TechTarget.