Amazon's AI Ambitions Are Growing: Can the Cloud Provider Deliver?

Amazon's AMZN AI strategy is gaining momentum with a substantial $10 billion commitment to expand cloud computing infrastructure in North Carolina, signaling the company's aggressive push to capture AI market share. This investment aims to support AI and cloud computing technologies while creating 500 high-skilled jobs, reflecting Amazon's broader infrastructure expansion to meet surging AI demand.

The investment comes as Amazon Web Services (AWS) demonstrates strong performance, posting 17% year-over-year growth in the first quarter and reaching a $117 billion annualized revenue run rate. AWS operating income increased to $11.5 billion from $9.4 billion in the prior year period. More significantly, Amazon's AI business segment now operates at a multi-billion-dollar annual revenue run rate with triple-digit percentage growth year over year. Our model estimate for AWS operating income in fiscal 2025 is pegged at $44.6 billion, indicating 12.1% growth year over year.

Amazon's strategy centers on custom silicon development, particularly its Trainium 2 chips, which offer 30-40% better price performance compared to GPU-based instances. The company has also expanded its AI model offerings through Amazon Bedrock and introduced services like Amazon Nova foundation models.

However, capacity constraints remain a challenge. Amazon has indicated that AI demand currently outpaces available capacity, suggesting the company could drive higher revenues with additional infrastructure. The North Carolina investment represents a critical step toward addressing this supply-demand imbalance while positioning Amazon to compete effectively in the rapidly evolving AI landscape.

Competitive Landscape: Cloud Giants Race for AI Dominance

Microsoft MSFT Azure reported 31% revenue growth in its latest quarter, outpacing Amazon's 17% AWS growth. Microsoft continues investing heavily in OpenAI partnerships and custom AI infrastructure. Microsoft's cloud revenues reached approximately $28 billion in third quarter fiscal 2025, demonstrating strong momentum in enterprise AI adoption.

Oracle ORCL has also accelerated its cloud infrastructure investments, though from a smaller base than Microsoft or Amazon. Oracle's partnership strategy with NVIDIA and focus on AI workloads position it as an emerging competitor in specialized AI infrastructure markets, challenging both Microsoft and Amazon's dominance in enterprise cloud services.

The Zacks Rundown for AMZN

The Zacks Consensus Estimate for 2025 net sales is pegged at $693.68 billion, indicating growth of 8.73% from the prior-year reported figure. The Zacks Consensus Estimate for 2025 earnings is pegged at $6.31 per share, which indicates a jump of 14.1% from the year-ago period.

Amazon.com, Inc. Price and EPS Surprise

Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote

(Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)

Amazon's valuation metrics raise questions about near-term upside potential. The company's forward 12-month Price-to-Sales of 3.05X stands significantly higher than the Zacks Internet - Commerce industry average of 2X, suggesting the stock may be fully valued at current levels.

AMZN’s P/S F12M Ratio Depicts Premium Valuation

With a 5.6% decline in the year-to-date period, AMZN has underperformed both the broader Zacks Retail-Wholesale sector and the S&P 500, which returned 2.5% and 0.4%, respectively.

AMZN’s Year-to-Date Performance

AMZN stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research