Amazon CEO Andy Jassy tried to calm concern about AI cloud competition. Wall Street isn't buying it.
Wall Street wasn't buying it.
Jassy fielded tough analyst questions about AWS growth and its position in the AI race. The stock tumbled 7% in after-hours trading, weighed down by disappointing profit guidance and Jassy's vague responses on AI.
During the call, Jassy was asked about rival companies' "significantly faster cloud growth." AWS reported revenue growth of 17%, a far slower rate than Microsoft and Google's cloud businesses.
Jassy said AWS has a much bigger revenue base, which makes comparing growth rates difficult. He also said AWS has better security and functionality than peers, while stressing its "pretty significant" leadership position in cloud market share.
"It's a $123 billion annual revenue run rate business, and it's still early," Jassy said, referring to AWS's annualized sales figure. "It is a very unusual opportunity that we're very bullish about."
Morgan Stanley analyst Brian Nowak followed up by asking about Wall Street's "narrative right now that AWS is falling behind" in AI, with concern about losing share to competitors.
Jassy launched into a sprawling response, calling the AI market "early" and "top-heavy," dominated by a handful of popular models and apps. He pointed to AWS's lower-cost Trainium AI chip as a potential draw for customers seeking better price performance. He rattled off new agentic tools and developer features, then circled back to familiar territory, comparing today's AI shift to the early days of the original cloud boom, which AWS pioneered.
"Remember 85% to 90% of global IT spend is still on-premises," Jassy said. "If you believe that equation's going to flip, which I do and we do, you have a lot of legacy infrastructure that you've got to move."
Baird senior research analyst Colin Sebastian told BI that despite AWS's continued growth, the market's reaction is concerning.
"Contrasting with Azure and Google Cloud Platform growth, it's hard to disprove the emerging Wall Street narrative that competitors are gaining ground and momentum from AWS," he said.
During the call, Jassy added that AWS still has capacity issues across electricity, chips, and server components, with power being the "single biggest constraint." He said it will likely take several quarters to meet the demand shortage.
One encouraging sign for AWS is that its cloud market share has barely budged over the past year. In the second quarter, the top 3 cloud providers' market share was virtually flat, with AWS at 30%, and Microsoft and Google each holding 20% and 13%, respectively, according to Synergy Research.
Amazon's spokesperson declined to comment.
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