Amazon stock drops as cloud revenue misses expectations

Amazon’s stock took a 4% hit on Friday (February 7, 2025), wiping out nearly $100 billion in market value after its latest cloud computing revenue figures fell just short of expectations.

Investors, who have been closely watching the company’s heavy spending on AI, were left underwhelmed by the numbers – especially given similar disappointments from Microsoft and Google’s parent company, Alphabet.

This latest stumble comes at a time when leading US cloud giants are under growing pressure to prove that their massive AI investments will translate into faster revenue growth. The situation was further intensified last month when China’s DeepSeek introduced a low-cost AI model, raising questions about the competitive landscape.

Despite the drop, Amazon’s stock remains up about 4% in 2025, while Microsoft and Alphabet have both slipped 3%.

Amazon cloud revenue growth falls short

Amazon Web Services (AWS), the company’s cloud arm, reported $28.79 billion in revenue for the latest quarter – up 19% year-over-year, but just shy of the $28.87 billion analysts were expecting, according to LSEG data. That growth rate was identical to the previous quarter, which didn’t offer the acceleration some investors had hoped for.

Adding to the concerns, Amazon’s outlook for the current quarter also disappointed, with revenue and profit forecasts failing to excite Wall Street.

Alphabet and Microsoft, which both reported solid increases in their cloud revenue, also missed investor expectations, signalling a broader slowdown in the sector.

A cloud slowdown or a capacity issue?

The fact that all three major cloud providers – Amazon, Microsoft, and Google – missed expectations has raised eyebrows among analysts. Daniel Morgan, senior portfolio manager at Synovus Trust, noted that the trend raises bigger questions about the industry’s trajectory.

“The fact that all three missed is a bigger story. There’s something amiss…it’s like okay what’s going on? Why are you missing (expectations) if the CapEx guide is going up?” Morgan said.

“We’re scratching our heads going, ‘Is it capacity constraints or is something going on that we don’t know about?’”

Tech giants continue their AI arms race

Despite the disappointing numbers, big tech isn’t slowing down on AI investments. Companies like Nvidia, Meta, Microsoft, Tesla, and Alphabet have collectively poured hundreds of billions of dollars into developing and scaling AI-driven infrastructure.

Even with some short-term uncertainty, analysts remain overwhelmingly bullish on Amazon. Out of 68 analysts covering the stock, none recommend selling, while four hold neutral ratings and the rest rate it a buy, according to LSEG data.

At least 10 analysts raised their price targets for Amazon following its earnings report, while four trimmed theirs, bringing the median target to $260 – which suggests a potential 13% upside from Friday’s closing price.

How Amazon compares to its peers

Amazon’s valuation also remains a topic of discussion. Its 12-month forward price-to-earnings (P/E) ratio stands at 37, which is higher than Alphabet’s (23) and Microsoft’s (29), reflecting investor confidence in its long-term potential despite near-term headwinds.

(Image by Pixabay)

See also: AWS strengthens ties with Australian Government in new cloud agreement

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