A rise in Amazon Internet Providers spending lower into the cloud large’s income within the second quarter as AWS raced to fulfill demand for AI in opposition to Microsoft, Google, and others.
Whereas Amazon beat Wall Road’s general expectations, its shares fell in after-hours buying and selling as buyers centered on rising prices throughout the cloud unit, the corporate’s greatest revenue engine.
AWS income grew 17.5% year-over-year to $30.9 billion, in keeping with estimates. However the prices of competing within the AI arms race have been evident within the cloud division’s income. AWS working earnings grew lower than 9% to $10.2 billion as its working bills surged to $20.7 billion, up from $16.9 billion a 12 months earlier.
This resulted in an working margin of 32.9% — the cloud large’s lowest profit-to-revenue ratio since late 2023, and effectively beneath the working margin of practically 40% within the first quarter.
On the corporate’s earnings name with analysts, Amazon CFO Brian Olsavsky attributed the strain on AWS’s revenue margin to a seasonal enhance in stock-based compensation, unfavorable international trade charges, and better depreciation prices from ongoing investments in AI infrastructure.
Afterward the decision, analysts pressed Amazon CEO Andy Jassy to reply to a “Wall Road narrative” that the corporate is falling behind rivals Microsoft and Google in pursuing the AI alternative.
Amazon’s outcomes got here a day after Microsoft disclosed annual income of greater than $75 billion for its Azure cloud platform, with quarterly progress of 39%, far exceeding expectations.
Google Cloud’s annual income run fee is greater than $50 billion, with quarterly progress of 32% year-over-year, in response to numbers disclosed by Google dad or mum Alphabet final week.
AWS is a considerably bigger enterprise, with an annual income run fee of greater than $123 billion, making it way more tough to generate eye-popping progress charges.
However even at that measurement, Morgan Stanley analyst Brian Nowak requested Jassy if it might be attainable for AWS progress to speed up for the rest of 2025, “given the scale of the chance” and the quantity of the generative AI workloads anticipated to return on-line within the subsequent 12 months.
Whereas Jassy declined to provide particular steering for the AWS phase, he mentioned he’s “optimistic in regards to the AWS enterprise” and its potential to speed up.
He cited a mixture of things, together with extra enterprises resuming their migrations from on-premises knowledge facilities to the cloud, the anticipated enhance in firms deploying AI purposes into manufacturing, and extra AWS capability coming on-line within the coming months.
Jassy described long-term strategic benefits for AWS, together with the truth that AI inference will finally be handled as “one other constructing block” like compute, storage and database.
Due to this, he mentioned, many shoppers will wish to run their AI purposes near the place their different purposes and knowledge already reside — creating a robust benefit for Amazon, as a result of “there’s simply so many extra purposes and knowledge operating in AWS than anyplace else.”
Jassy mentioned AWS has a key benefit with its custom-built chips, which he mentioned supply 30% to 40% higher price-performance for inference than different GPU suppliers.
He additionally pointed to what he known as a “very large distinction” in safety — alluding to issues which have plagued Microsoft with out naming the corporate instantly — and famous that AWS has a extra vital, end-to-end set of AI providers “from the underside of stack all the best way to prime.”
AI milestones for the corporate within the current quarter included the launch of Kiro, a brand new agentic built-in growth atmosphere (IDE) that lets builders code in pure language, whereas the system mechanically creates documentation and specs, and scans for safety points.
The corporate reported $31.4 billion in capital expenditures for the second quarter, up from practically $25 billion within the first quarter, most of it associated to expertise infrastructure. Amazon’s capex quantity will not be instantly similar to Microsoft and Google on account of its extra investments in success facilities and its Mission Kuiper satellite tv for pc community.
Olsavsky mentioned AWS will proceed to speculate extra capital in knowledge facilities and different sources “to pursue this unusually massive alternative that we’ve in generative AI.” Working margins, he mentioned, will “fluctuate over time, pushed partially by the extent of investments we’re making.”
