AWS growth lags behind Microsoft and Google, profit margins decline, Amazon plummets 7% after hours | Earnings Report Insights

Amazon announced its second-quarter financial report after U.S. stock market hours on Thursday, showing net sales of $167.7 billion, exceeding analysts' expectations of $162.15 billion. However, the much-anticipated growth of Amazon Web Services (AWS) disappointed investors, and the guidance for operating profit in the third quarter fell short of expectations. Investors are concerned that Amazon is overspending to catch up with competitors in the artificial intelligence race, causing the company's stock price to drop by as much as 7% in after-hours trading.

Here are the key points from Amazon's second-quarter financial report:

Key Financial Data:

Net Sales: Net sales for the quarter grew by 13% to $167.7 billion, higher than analysts' expectations of $162.15 billion; excluding a favorable impact of $1.5 billion from currency fluctuations this quarter, net sales increased by 12% year-over-year.

Operating Profit: Amazon's operating profit for the quarter was $19.2 billion, exceeding analysts' expectations of $17 billion.

Net Profit: Amazon's net profit for the quarter rose to $18.2 billion, compared to $13.5 billion in the same period last year.

Earnings Per Share: Amazon's diluted earnings per share for the quarter were $1.68, higher than analysts' expectations of $1.33, compared to $1.26 in the same period last year.

Operating Cash Flow: For the 12 months ending June 30, 2025, operating cash flow grew by 12% to $121.1 billion.

Free Cash Flow: For the 12 months ending in the second quarter, Amazon's free cash flow fell to $18.18 billion, significantly down from $25.93 billion in the previous quarter and far below $52.97 billion in the same period last year, marking a two-year low.

AWS Cloud Business:

Sales: AWS's sales in the second quarter grew by 17.5% year-over-year to $30.9 billion, slightly above market expectations of $30.77 billion;

Operating Profit: AWS's operating profit for the second quarter was $10.2 billion, below analysts' expectations of $10.9 billion, compared to $9.3 billion in the same period last year.

Profit Margin: AWS's profit margin for the second quarter was 32.9%, down from 39.5% in the first quarter of this year and 35.5% in the same period last year.

Regional Data:

North America Business: Amazon's North American business sales grew by 11% year-over-year to $100.1 billion, exceeding analysts' expectations of $97.36 billion. Operating profit was $7.5 billion, compared to $5.1 billion in the same period last year.

International Business: Amazon's international business sales grew by 16% year-over-year to $36.8 billion; excluding currency fluctuations, growth was 11%. Operating profit was $7.5 billion, compared to $5.1 billion in the same period last year.

Performance Guidance:

Net Sales: Amazon expects third-quarter net sales to be between $174 billion and $179.5 billion, representing a year-over-year growth of approximately 10% to 13%, higher than analysts' expectations of $173.24 billion. This expectation includes a positive impact of about 130 basis points from currency fluctuations

Operating Profit: Amazon expects its operating profit for the third quarter to be between $15.5 billion and $20.5 billion, with the median falling short of analysts' expectations of $19.42 billion, compared to $17.4 billion in the same period of 2024.

Amazon President and CEO Andy Jassy stated,

“Our ongoing progress in AI is improving the customer experience, accelerating innovation, enhancing operational efficiency, and driving business growth across the board. I am very excited about the outlook for the future.”

After the earnings report was released, Amazon's stock price fell more than 7% in after-hours trading.

Analysts: AWS Growth Disappointing, Risk of Losing Cloud Service Leader Position

Media reports indicate that the impressive cloud business revenue data previously released by Microsoft and Google’s parent company Alphabet had raised expectations for Amazon AWS. Both Microsoft and Alphabet stated that strong demand for cloud computing services has driven their already substantial capital expenditure, but also mentioned that there are still capacity bottlenecks that make it difficult to fully meet market demand.

Currently, Amazon CEO Andy Jassy is in an arms race with Microsoft and Google in AI infrastructure, which requires significant investment in data centers. AWS still maintains a leading position in the cloud infrastructure market, but with the accelerated investments from Microsoft and Google, as well as the three tech giants increasing their investments in the AI field to capture the surging market demand, AWS is facing increasingly fierce competitive pressure.

Although AWS accounts for a small proportion of Amazon's total revenue, it is a key engine of the company's profits, typically contributing about 60% of overall operating profit. AWS achieved a year-on-year growth of 16.9% in the first quarter of this year. As the world's largest cloud service provider, AWS's performance is closely watched.

In the second quarter, Amazon's revenue surged 13% to $167.7 billion, far exceeding market expectations. However, as the world's largest cloud computing rental service provider, AWS only grew by over 17% to $30.9 billion, slightly above analysts' average expectation of $30.8 billion.

At the same time, AWS's profit margin has also contracted. Amazon stated that AWS's profit margin in the second quarter was 32.9%, down from 39.5% in the first quarter of this year and 35.5% in the same period last year, marking the lowest level since the fourth quarter of 2023.

DA Davidson analysts stated that AWS's sales growth is "very disappointing," as the growth rates reported by Microsoft and Google were higher. Microsoft's Azure saw a 39% increase in sales over the three months ending in June, while Google Cloud revenue grew by 32%. Analysts noted:

“AWS is currently maintaining a growth rate of 17%, which is very disappointing. If Microsoft Azure continues to grow at the current pace, it may surpass AWS by the end of next year, becoming the world's largest cloud service provider.” Dave Wagner, portfolio manager at Aptus Capital Advisors, stated that AWS's performance is "shocking." The company holds Amazon stock. He pointed out:

"Amazon is essentially a growth story that relies on operational leverage; they must achieve growth that exceeds cost growth. But they haven't done that."

Moreover, some analysts have noted that due to AWS's failure to launch strong AI models, some investors are concerned about whether it is falling behind competitors in AI development.

Preparing for Tariffs with Advance Stockpiling

Meanwhile, the tariff policies pushed by President Trump have put pressure on the U.S. retail industry, with major retailers and consumer goods companies striving to protect profit margins by either raising prices or seeking other measures while maintaining consumer purchasing power.

Investors are closely watching Amazon's e-commerce business to determine whether tariff-related uncertainties have weakened consumer confidence. The latest U.S. data shows that consumer spending grew moderately in June.

Analysts point out that Amazon's focus on low prices, fast delivery, and a vast array of product categories has firmly established it as the number one e-commerce retailer in the minds of U.S. consumers, giving it a competitive edge.

Amazon is one of the last large retailers to report quarterly earnings. Walmart warned last month that prices on some goods would rise due to the pass-through of tariff-related costs, which could impact the current strong performance of the retail industry. Amazon has stated that it has urged suppliers to stock up in advance to ensure stable supply and keep prices as low as possible.

Additionally, Amazon is also cutting staff at its headquarters, including in business units such as AWS, books, devices, and podcasts. The layoffs have already shown results: the total number of employees has decreased by 14,000 since the first quarter of this year, bringing the total to 1.46 million