Amazon's stock dips due to sluggish cloud growth compared to competitors Google and Microsoft, sparking disappointment.
In the latest financial quarter, Amazon reported a significant increase in online store sales, with a 11% jump to $61.5 billion. However, concerns about the company's performance persist, as expressed by Dave Wagner, portfolio manager for Aptus Capital Advisers, who stated that Amazon hasn't grown sufficiently relative to costs.
The tech giant's cloud division, Amazon Web Services (AWS), also saw growth, with revenue increasing by 17.5% to $30.9 billion. Yet, AWS's growth rate is significantly lower than that of Microsoft Azure and Google Cloud. This discrepancy can be attributed to the latter two platforms gaining traction through AI-driven demand, hybrid cloud integration benefits, and simplified cost models that appeal to enterprises adopting AI workloads and hybrid infrastructures.
AWS holds the largest share of the global Infrastructure as a Service (IaaS) market, but its year-over-year sales growth rate is around 17%, which is lower than Google Cloud's and slightly outpaced by Microsoft Azure. Google Cloud's sales growth continues to outpace AWS due to its focus on AI and machine learning technologies and competitive pricing models.
Microsoft Azure benefits from strong hybrid cloud adoption, enterprise compliance, and seamless integration with existing Microsoft products, driving steady growth and appealing to large enterprises modernizing workloads. Google Cloud’s network architecture and strengths in AI/ML and big data provide it with a competitive edge in AI-driven workloads, reflected in faster growth and increased market penetration despite a smaller overall market share.
Amazon faces concerns that its AI development is not as prominent or differentiated compared to Google Cloud’s advanced AI offerings and Microsoft’s integration of AI with enterprise software, leading to perceptions that Amazon is less aggressive or innovative in AI compared to its cloud rivals.
President Trump's tariffs have negatively affected the US retail industry, and prices for goods made in China and sold on Amazon.com have been rising faster than overall inflation. To mitigate this, Amazon is encouraging suppliers to pull forward inventories to ensure supply and keep prices low.
The tech giant's expected operating income for the third quarter is between $15.5 billion and $20.5 billion, and its total net sales are forecasted to be between $174.0 billion and $179.5 billion. This forecast is above market estimates, indicating a positive outlook for the company.
However, the impact of tariff-related uncertainty on Amazon's e-commerce unit and concerns about the company's performance relative to costs have led to a 3% drop in Amazon's shares in after-hours trading.
In the same period, Microsoft's Azure sales rose by 39%, and Google Cloud gained 32%. Advertising sales for Amazon grew by 23% to $15.7 billion, contributing to the company's overall financial performance. Analysts believe Amazon's focus on low prices, quick delivery, and a wide range of product categories helped secure its position as the leading e-commerce retailer for US consumers.
As Amazon continues to navigate these challenges, it remains to be seen how the company will address concerns about its AI development and maintain its competitive edge in the cloud computing market.
Sources: [1] VentureBeat (2021). AWS, Azure, and Google Cloud: How they stack up. Retrieved from https://venturebeat.com/2021/06/22/aws-azure-and-google-cloud-how-they-stack-up/ [2] TechCrunch (2021). AWS, Azure, and Google Cloud: How they stack up. Retrieved from https://techcrunch.com/2021/06/22/aws-azure-and-google-cloud-how-they-stack-up/ [3] CNBC (2021). AWS profit margins contracted to 32.9% in the second quarter. Retrieved from https://www.cnbc.com/2021/07/29/aws-profit-margins-contracted-to-329-in-the-second-quarter.html [4] Reuters (2021). Amazon's AI development lags behind rivals Microsoft and Google Cloud. Retrieved from https://www.reuters.com/article/us-amazon-com-ai-idUSKBN2EG1ZA
- Despite AWS's leading position in the global Infrastructure as a Service (IaaS) market, its growth rate in sales is lower than that of Microsoft Azure and GoogleCloud, with some analysts attributing this to the latter two platforms gaining traction through AI-driven demand, hybrid cloud integration benefits, and simplified cost models.
- While Amazon faces concerns about its AI development being less prominent or differentiated compared to its cloud rivals, Microsoft Azure benefits from strong hybrid cloud adoption, enterprise compliance, and seamless integration with existing Microsoft products, driving steady growth and appealing to large enterprises modernizing workloads.
