TMTPOST -- Amazon.com Inc. stock on Friday saw its wort day in around four months as investors sounded the alarm over risks that the e-commerce behemoth is going from the cloud market leader to laggard despite heavy artificial intelligence (AI) investment.

Credit：Amazon

Amazon shares closed 8.3% lower, logging their largest daily decline since April 3, and settled at $214.75, erasing gains over the past five weeks. Amazon stock led a sell-off in tech giants on Friday. The major average S&P 500 index fell 1.6% to end at 6,238.01, notching its worst decline since May 21, while the Nasdaq Composite shed 2.2%, closing at 20,650.13 for its biggest slide since April 21. Amazon also led the Dow Jones Industrial Average’s 524.50-point drop, or 1.23%, its biggest plunge since June 13.

While the U.S. stock benchmark tumbled after President Donald Trump’s announcement of sweeping tariffs late Thurday and weak jobs and manufacturing data released Friday, which fueled concerns about the economy, Amazon stock shed on earnings. The company posted mixed financial results guidance and performance of Amazon Web Services (AWS), its cloud computing unit, failed to impress Wall Street.

Amazon said late Thursday revenue for the quarter ended June 30 increased 13% year-over-year (YoY) to $167.70 billion, beating analysts estimated $162.15 billion, and above the upper end of the company’s guidance range of $159 billion to $164 billion. Online Stores net sales grew 11% YoY to 61.49 billion, and Physical Stores net sales gained 7.5% YoY to $5.6 billion, both ahead of analysts’ estimates of %59.15 billion and $5.49 billion.

The bottom line also topped Wall Street expectation. Earnings per share (EPS) soared 33.3% YoY to $1.68, compared with analysts projected $1.33. Operating income stood at $19.17 billion with a 31% YoY increase, better than estimates of $17 billion, and above the upper end of the company’s guided range of $13 billion to $17.5 billion. Operating margin expanded 150 basic points YoY to 11.4%, while analysts expected to be 10.4%.

The closely-watched AWS recorded net sales of $30.87 billion, representing a 17% YoY increase. AWS sales for the second quarter were just above the analyst anticipation, while the growth rate was the same with three months ago and slow down from the previous two quarters with an 19% YoY rise.

In comparison with revenue from AWS just barely beat, what Wall Street may have been growing on is the continued decline in AWS operating margin. The margin dropped 261 basic points YoY to 32.91%, the lowest since the fourth quarter of 2023, and it even shed more sequentially with a 654 basic points quarter-over-quarter (QoQ) decrease. As a result of the fall in AWS profits, Amazon’s consolidated operating margin posted a sequential drop and in Q2 declined from a record high of 11.8% to 11.4%.

Amazon CEO Andy Jassy said his company was bullish on its cloud arm and the business faces more demand than it has capacity currently. But Wall Street analysts believed Amazon isn’t seeing the same cloud momentum as its peers, and that’s weighing materially on its stock Friday. Jefferies analyst Brent Thill pointed out AWS for the second quarter didn’t accelerate much compared with the same period a year earlier, and was “disappointing” given the momentum at Microsoft Corporation and Google’s parent Alphabet Inc.

Microsoft Azure and Alphabet's Google Cloud both saw bigger growth pickups and big beats relative to expectations. Revenue from Azure and other cloud services recorded a YoY increase of 39%, whereas analysts expected the unit would deliver an increase of 34.2%, up from 33% three months ago. Revenue from Google Cloud refreshed quarterly record, jumping 32% YoY to $13.62 billion for the second quarter. That was better than analysts estimated $13.14 billion.

Amazon’s guidance seemed another negative that weighed on its stock. For the current quarter, Amazon saw net sales to be $174.0 billion to $179.5 billion, above the estimate of $173.2 billion. The guidance represents an average of 11.2% YoY increase in revenue for from July to September, down from the YoY growth rate of 13% for the previous three-month period. The operating income was expected to land between $15.5 billion and $20.5 billion, with the mid point coming below the anticipation of $19.42 billion.

The comparative results of cloud business raised question on Wall Street about whether Amazon is doing enough to capitalize on AI demand for cloud services, even as it spends heavily on AI infrastructure. Amazon’s capital expenditure (Capex) expanded 29.2% QoQ to $31.4 billion. The company projected similar outlays of each of the remaining two quarters of the year. Roth Capital Partners analyst Rohit Kulkarni estimated that projection suggested Capex for this year could approach $120 billion, up from the prior suggestion of a $100 billion outlook.

Wedbush analyst Scott Devitt said in a note late Thursday, "In the coming quarters, we expect concerns around the intermediate-term trajectory of AWS growth rate and margin could remain an overhang on shares as investors contemplate the rising perception of AWS as a laggard in the AI space."

"AWS remains the cloud GOAT" - meaning the greatest of all time - "but Azure and [Google Cloud] are catching up fueled by AI petrol while AWS' tank appears to be delivering less power," Bernstein's Mark Shmulik wrote in a note to clients. "This AI race is a marathon, and AWS has some catching up to do."