Is Amazon a Buy After Earnings? Not Compared to These "Magnificent Seven" Stocks

Coming into Amazon's (NASDAQ: AMZN) first-quarter earnings report, investors were hoping to see the company's retail business holding up in the face of a weakening economy and tariff threats and for the cloud business to deliver solid growth.

Amazon beat estimates in the quarter, turning in revenue growth of 9% to $155.7 billion, ahead of the consensus at $155.1 billion. On the bottom line, operating income rose 20.2% to $18.4 billion, and earnings per share jumped from $0.98 to $1.59, ahead of expectations at $1.37, as it benefited from gains on investments.

Looking ahead to the second quarter, Amazon called for revenue of $159 billion to $164 billion, up 7% to 11%, which was in line with the consensus.

Despite those results, Amazon stock fell on the news after hours on Thursday due to the threat of tariffs and a weakening economy. On the earnings call, CEO Andy Jassy said the company was prepared to respond to whatever challenges the trade war presented. He said much of its sales come from low-priced essentials like groceries, and its product range and base of 2 million sellers give it more flexibility than other retailers.

Regarding the cloud business, Jassy also reminded listeners that 85% of global IT spending is still on premises, meaning just 15% is in the cloud, and he expects that share to flip in the next 10 to 20 years.

Amazon Web Services delivered another solid round of growth, with 17% revenue growth up to $29.3 billion, and operating income in the segment increasing from $9.4 billion to $11.5 billion.

However, despite AWS' seemingly solid growth rate, it continues to lag behind its competitors.

Image source: Amazon.

AWS is losing market share

Amazon competes closely with Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in cloud infrastructure. The trio of companies is sometimes known as the "Big 3" of that industry.

AWS is the leader in revenue, but its two rivals are growing significantly faster. In Q1, Microsoft reported 33% growth in Azure, while Alphabet posted 28% growth to $12.3 billion.

Microsoft doesn't provide a revenue figure for Azure, but it's believed to make up the majority of its intelligent cloud segment, which brought in $26.8 billion in revenue.

The first quarter is the latest in a long streak of Microsoft and Alphabet outgrowing Amazon in cloud computing, and that looks set to continue. Microsoft benefits from its vast enterprise software applications that integrate easily with Azure, while Alphabet is known for its prowess in data analytics.

Additionally, both of those companies have been outgrowing Amazon in overall revenue growth in the last several quarters, as the chart below shows.

AMZN Operating Revenue (Quarterly YoY Growth) data by YCharts.

In Q1, Microsoft's revenue clocked in at 13%, compared to just 9% for Amazon.

Amazon is also lagging in AI

Amazon is also lagging behind Microsoft and Alphabet in its AI strategy, as Amazon seemed taken off guard by the launch of ChatGPT.

Microsoft had partnered with OpenAI in 2019, while Alphabet had been developing its own AI models even before that. Amazon has since invested billions in Anthropic, an AI start-up, but it hasn't rolled out the wide range of AI products and models that Microsoft and Alphabet have.

Amazon still has considerable competitive advantages overall, but its e-commerce business is maturing, and its cloud computing business is losing share to its closest rivals.

Selling the stock seems premature, given its solid growth and reasonable valuation. But in a side-by-side comparison, Microsoft and Alphabet both stack up well next to Amazon, and Alphabet's stock is also significantly cheaper.

Diversifying into one or both of these fellow "Magnificent Seven" peers makes sense for investors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.