Amazon’s Cloud Casts a Shadow

Amazon has also been joining its big tech peers in trying to slash costs, including announced layoffs totaling 27,000 workers so far. Operating income jumped 30% from a year earlier to about $4.8 billion, blowing past the $3.1 billion expected by analysts. 

That seemed enough on its face for Amazon not to spoil what has so far been a strong string of reports for big tech. Results from Microsoft and Google-parent Inc. on Tuesday, and Facebook -parent Meta Platforms on Wednesday were a positive surprise against some downbeat expectations. Those three companies beat Wall Street’s revenue projections for the quarter by an average of 3%, sending stocks across the sector higher. The Nasdaq Composite has risen 3% over the last two trading sessions. Amazon’s shares jumped 7% in that time. 

But Amazon’s vital cloud business rained on the party a bit. Revenue growth for the AWS segment was a record low 16% year over year and only barely exceeded Wall Street’s forecasts. And the unit’s operating income for the quarter of $5.1 billion was about 4% below analysts’ forecasts.

Amazon also told analysts during Thursday’s conference call that the AWS growth rate this month is tracking 500 basis points below what the company saw in the first quarter, suggesting growth could end up even lower than the 13% projected by Wall Street for the second quarter. Amazon’s share price slipped nearly 4% in after-hours trading following the call—a sharp turn from the stock’s gain of as much as 9% earlier in the after-hours session, ahead of that disclosure. 

That might seem harsh, considering AWS still only accounts for about 16% of Amazon’s total business. But it is also the sole source of operating profit, as the retail side has been losing money for the past six quarters. It also suggests Amazon may be losing ground to arch-rival Microsoft, which projected better-than-expected growth for its Azure cloud business for the same period—and even noted some small contributions starting to come in from the generative artificial intelligence technology the company has only recently been adding to its products. 

Amazon isn’t taking the matter lightly. Chief executive Andy Jassy even joined the company’s call Thursday for the second straight time, a sharp pivot from the practice of predecessor Jeff Bezos.

Mr. Jassy, who led AWS from its inception up to his elevation to Amazon’s top job in 2021, touted Amazon’s own efforts in generative AI, including the development of its own in-house chips to power the technology. But he also noted that much of AWS’s staff are busy helping customers “optimize” their cloud spending, which means spending less as the economy slows. The reasoning is that such efforts produce greater customer loyalty in the long run. Some Amazon investors may not be willing to stick around long enough to find out.

Write to Dan Gallagher at [email protected]