Amazon Stock Falls 8%. Why, Jassy To-Dos, Why To Skip $AMZN Shares

SANTA FE, NEW MEXICO – APRIL 5, 2020: An Amazon Prime package delivered to a mailbox by a U.S. Postal Service mailman in Santa Fe, New Mexico. (Photo by Robert Alexander/Getty Images)

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Amazon stock fell 8.3% following a mixed second quarter report, according to CNBC.

Why? Although Amazon’s retail business performed well, investors expressed disappointment with the growth pace of Amazon Web Services – which grew more slowly than Microsoft Azure and Google Cloud. Analysts expressed frustration with CEO Andy Jassy’s explanations for AWS’s relatively slow growth during the conference call.

Amazon’s fundamental problem is its failure to adapt to the competitive imperatives of the generative AI age, as I described in my book Brain Rush. This age has been propelled by two companies – OpenAI which supplied the fast-growing ChatGPT and Nvidia, the designer of AI chips for speeding the training and operation of AI chatbots.

Amazon seems to be applying the strategy it used to pioneer the cloud services industry to the AI cloud market – where it is struggling to catch up. More specifically, unlike Microsoft and Google – which have access to proprietary integrated AI chatbots (ChatGPT and Gemini, respectively) – AWS’s strategy of handing off to developers the task of choosing and integrating individual computing services requires more technical expertise – thereby slowing adoption.

To grow faster, Jassey ought to consider three possible strategies:

• Accelerate development of integrated AI solutions
• Form partnerships to gain access to more capacity
• Restructure AWS and enhance transparency

Since Jassy helped build AWS and has yet to demonstrate a compelling vision for competing with faster growing rivals, I am skeptical of whether Amazon will be able to leapfrog these rivals.

“Our conviction that AI will change every customer experience is starting to play out,” Jassy said in an earnings release. “Our AI progress across the board continues to improve our customer experiences, speed of innovation, operational efficiency, and business growth, and I’m excited for what lies ahead,” he added.

I have requested comment from Amazon and will update this post if I receive a response.

Amazon’s Mixed Second Quarter Results

Amazon’s second quarter results blended above expectations sales and earnings with a mixed forecast for the future and a shaky explanation for why AWS is growing more slowly in the age of AI.

Here are the key numbers:

• Second quarter 2025 sales: $167.7 billion – up 13% and $5.5 billion above the FactSet consensus, according to Investor’s Business Daily.
• Q2 2025 adjusted earnings per share: $1.68 – up 33% 35 cents more than analysts polled by FactSet were forecasting, reported IBD.
• Q2 AWS revenue: $30.87 billion – up 17.5% which beat analysts estimates but “disappointed compared to the 39% growth for Microsoft Azure and 32% revenue jump by Google Cloud over the same period,” IBD wrote. AWS’ operating margin also disappointed – falling from 39.5% in Q1 2025 to 32.9% in Q2, noted AInvest.
• Q3 2025 sales forecast: $176.75 billion at the range midpoint – $3.48 billion above the FactSet consensus, IBD noted.
• Q3 2025 operating income forecast: $18 billion at the range midpoint – $1.5 billion below analyst estimates, according to FactSet.

Amazon and its hyperscaler rivals – such as Google and Meta – are increasing their capital expenditures. For example, Amazon is boosting capital expenditures 42% to $118 billion in 2025, Google’s will reach $85 billion and Meta forecast $69 billion in 2025 capex, according to CNBC.

Investors are using growth rates as a proxy for the return on AI investments. Since AWS is growing at roughly half the rate of Microsoft Azure and Google Cloud, investors see a problem with AWS’s strategy.

Jassy’s responses to analyst questions about AWS’ relatively slow growth did not directly address the question. He said the faster-growing second ranked rival was “65%” the size of AWS, highlighted Microsoft’s security woes – notably the hacking of SharePoint, and suggested it was “early days” in AI, according to the Q2 earnings conference call transcript.

These comments did not offer a compelling explanation of why Amazon – with 30% market share to Microsoft Azure’s 20%, according to Synergy Group — is growing about half the rate of challengers.

Why AWS Is Growing More Slowly Than Rival Cloud Services

Since Jassy sidestepped the question, here are two reasons I think AWS is growing more slowly than rivals:

• AWS lacks an integrated proprietary model like GPT‑4 or Gemini. While AWS hosts third-party models like Cohere and Stability AI and has invested $4 billion in Anthropic, it lacks “the strategic coherence of its rivals,” noted AInvest. The amount of technical expertise required to use AWS’ build-it-yourself tools delays customer adoption. By contrast, Microsoft has locked users into its platform by using OpenAI’s technology to increase the productivity of Office 365, GitHub, and Azure users. Google’s Gemini models are similarly integrated into search and enterprise workflows – such as the healthcare solution Med-PaLM, reported AInvest.
• AWS lacks the computing capacity required to grow faster. Amazon claims the company is unable to meet demand due to physical infrastructure bottlenecks including power grid limitations, GPU shortages, and data center capacity constraints, according to CIOdive. By contrast Microsoft and Google have combined internal chip developments and partnerships with Nvidia to access GPUs; they’ve built global data centers; gained access to new sources of power such as small nuclear reactors; and diversified their hardware supply chains.

What Amazon Must Do To Surpass Cloud Services Rivals

Here are three strategies Amazon must pursue to grow faster than its cloud services rivals:

• Accelerate development of integrated AI solutions. Amazon must form deeper partnerships with leading AI companies (similar to Microsoft-OpenAI) and acquire two to three specialized AI startups with frontier model capabilities. The company should also expand the Anthropic partnership beyond the current $8 billion investment to provide Amazon a proprietary integrated AI solution that can outperform rivals AI chatbots.
• Form partnerships to gain access to more capacity. Amazon could relieve chip and power constraints by negotiating long term supply agreements with chip makers including Nvidia and AMD and renewable energy providers; reduce reliance on third party GPUs by expanding the use of Amazon’s custom chips – such as Trainium and Inferentia; and seek joint ventures with telecom and data center companies to share infrastructure costs.
• Restructure AWS and enhance transparency. AWS should create dedicated AI product teams that can decide and act more quickly. AWS should launch between five and 10 integrated AI services by 2026 — such as enhanced Bedrock capabilities, AI-powered databases, and developer tools that rival Azure’s AI offerings. A more radical recommendation would be to split up Amazon into Amazon Services – which I would further divide into AWS, Amazon ECommerce, and Amazon Entertainment – and Amazon Products, as I wrote in an October 2021 Forbes post.

These recommendations may be difficult to implement and may not result in new services that deliver more value to customers than those from faster-growing rivals.

That’s partly because they are at odds with Amazon’s culture. For example, Amazon believes in inventing and improving its own solutions – as it did with AWS and Alexa. Therefore the recommended partnerships may be at odds with the company’s culture.

Moreover, as former CEO of AWS, Jassy may have strategic blind spots. These could include viewing AI as primarily an infrastructure challenge that Amazon can solve with superior engineering. Jassy may also be dismissing the more rapid growth of rivals as superficial, as he did during the investor conference call, rather than a sign customers value AI cloud services from Microsoft and Google more highly.

What Analysts Are Saying About Amazon’s Stock

Is Amazon stock – which has lost 2.4% of its value so far in 2025 – trading at a bargain price? Some analysts sound skeptical:

• Amazon’s report had good and less good points. While Amazon’s retail business was “firing on most cylinders,” AWS’ “growth didn’t really accelerate like peers, margins missed and management’s commentary on the call did little to attenuate investor fears that AWS may have a bigger structural issue in capturing its fair share of the growth from AI,” RBC Capital analyst Brad Erickson wrote to clients July 31 featured by IBD.
• Despite growth in AWS backlog, Amazon may be missing the AI cloud. “The AWS backlog growth acceleration to 25% was a distinct positive, but the rest of the AWS results and commentary just did not address the market’s concern that Amazon is ‘missing’ the AI cloud opportunity,” Evercore ISI analyst Mark Mahaney wrote in a July 31 note, reported IBD.
• Amazon lacks a compelling competitive strategy. AWS strategy as described in the conference call “sounded less constructive than peers,” Bernstein analysts wrote, according to CNBC. “Words matter…but numbers matter more,” the analysts wrote.

Despite this skepticism, analysts see Amazon stock as slightly undervalued. Of the 52 analysts who cover Amazon, the stock has 9.2% upside based on an average price target of $255.72, according to Zacks.

Unless AWS’ revenue growth and operating profit accelerate, that modest gain could prove difficult to achieve.