Amazon Shares Plunge as Cloud Growth Disappoints

Amazon shares took a significant hit on Friday, falling 4%, after the company's quarterly cloud computing revenue growth fell short of investor expectations, as reported by Reuters. This slowdown comes despite massive investments in artificial intelligence (AI) and follows similar disappointing results from Microsoft and Alphabet-owned Google.

The results highlight a growing investor concern regarding the massive spending on AI by leading US cloud-computing companies. This concern is amplified by the recent emergence of a low-cost AI model from China's DeepSeek, which has prompted greater scrutiny of the industry's spending.

Friday's share price drop erased approximately $100 billion from Amazon's market capitalization. While Amazon's stock remains up about 4% for the year, Microsoft and Alphabet have both seen their shares decline by 3%.

Amazon Web Services (AWS), the company's cloud unit, reported a 19% increase in revenue to $28.79 billion. However, this figure fell slightly short of the $28.87 billion analysts had projected, and matched the growth rate observed in the previous quarter.

Amazon's post-market earnings report also included current-quarter revenue and profit forecasts that failed to meet investor expectations.

Similar underperformance was seen from Alphabet and Microsoft, both of which posted large increases in their quarterly cloud revenue that nevertheless fell short of what investors anticipated.

"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?" said Daniel Morgan, senior portfolio manager at Synovus Trust. He added, "We're scratching our heads going 'is it capacity constraints or is something going on that we don't know about?'"

Despite the disappointing results, analysts remain generally optimistic about Amazon. Sixty-eight analysts recommend buying Amazon's shares, while only four have neutral ratings and none recommend selling, according to LSEG data. Following the earnings report, at least 10 analysts raised their price targets on the stock, while four lowered theirs, bringing the median target to $260. This target implies a potential 13% upside to the stock's price on Friday.

However, Amazon's current valuation remains elevated, with a forward price-to-earnings ratio of 37, significantly higher than Alphabet at 23 and Microsoft at 29.