AWS cloud business faces intensifying competition
AWS remains crucial to the company’s profitability, contributing 19% of total revenue. The cloud division is expected to grow 17.4% YoY in Q2.
However, AWS faces mounting pressure from competitors. Microsoft’s Azure and Google Cloud have been aggressively pursuing market share, reducing AWS’s dominance from 33% in Q1 2022 to 29% in Q1 2025.
The company announced redundancies in AWS last week, alongside plans for further workforce reductions over the coming years. Management believes artificial intelligence can automate many current tasks, supporting Amazon’s key strategy of expanding AWS operating margins to improve overall company profitability.
AWS achieved a record operating margin of 39.5% in Q1. Investors will scrutinise whether this level can be maintained whilst fending off competitive pressure from rivals.
Trade policy uncertainty creates headwinds
Amazon faces significant challenges from evolving trade policies. The e-commerce giant sources products globally while generating 60% of revenue from North America, making it vulnerable to tariff changes.
Management highlighted ‘substantial uncertainty’ from trade policies in the previous earnings call. Investors will seek clarity on how Amazon plans to navigate these challenges.
Higher tariffs create a difficult choice for Amazon. Absorbing costs would damage margins, while passing them to consumers could reduce purchasing power and sales.
The complexity of constantly changing trade rules also increases administrative burden. Amazon must continually adjust pricing strategies and supply chain management to remain compliant yet competitive.