What Amazon’s Q2 Tells The Channel About AI, Cloud

AWS’ growth was outshined this quarter by rivals Microsoft and Google Cloud.

Amazon Web Services parent Amazon.com’s latest quarterly earnings report appears to have disappointed investors, with its share price down about 8 percent last Friday morning compared with market close last Thursday—but the results by the No. 1 cloud vendor still present some important takeaways for the channel when it comes to opportunities in the cloud market and artificial intelligence space.

The Seattle-based vendor, which has about 130,000 partners worldwide, was outshined this quarter by more impressive growth No. 2 cloud provider Microsoft and No. 3 cloud provider Google Cloud posted in their latest earnings reports.

AWS margins also came in below expectations with a 6.5-point drop quarter over quarter and 2.6-point drop year on year. More than half of that drop was caused by stock-based compensation, foreign exchange rates and growing depreciation, Bank of America said in a report last Friday.

Amazon Q2 2025

AWS’ backlog growth of $6 billion quarter over quarter to $195 billion came in “below peers,” according to the investment firm. That amount comes out to year-over-year growth acceleration by 5 percentage points to 25 percent.

On its earnings call, listeners were looking for more confidence on AWS accelerating growth in the second half of the year, but executives “did not explicitly say AWS could accelerate in 3Q,” Bank of America said in its report.

On the call, Amazon.com CEO Andy Jassy said he thinks AWS will need “several quarters” to resolve capacity constraints.

“We could be doing more revenue and helping customers more, and we are working very hard on changing that outcome and how much capacity we have,” he said. “I do expect it’s going to get better each quarter, and I’m optimistic about that.”

Some Good Signs

AWS losing ground on quarterly revenue shouldn’t cause panic over its performance in the long term as evidenced by strong deal signings and repeated comments that the vendor is capacity-constrained, meaning that it sees more demand than supply, according to a report by Bank of America. The good news was that AWS’ revenue of $168 billion during the quarter, with a profit of $19.2 billion, still met company forecasts and bested Wall Street expectations of $162 billion in revenue and $17 billion in profit, according to the investment firm. Its quarter-over- quarter growth accelerated to 17.5 percent and bested Wall Street expectations.

Still, the investment firm said AWS can turn things around, pointing to growing capital expenditures by the vendor to address constraints in chips and other equipment needed to meet AI demand. Microsoft’s eye-popping multibillions in spending to meet AI demand appears to have led to revenue growth, enough to keep healthy margins. AWS should have the ability to duplicate that success.

Amazon said it will spend about $31 billion in capital expenditures each of the next two quarters. That means about $378 billion in 2025 CapEx spending, up 65 percent year over year and above the $250 billion forecast at the end of 2024, according to a report by William Blair. For comparison, Google increased its CapEx guidance by $10 billion to $85 billion for the year. Microsoft forecast next-quarter CapEx about $6 billion higher to $30 billion.

Not only that, but AWS added the second most revenue dollars quarter over quarter in its history in the latest results, a notable milestone, according to Bank of America. Cloud growth “can be lumpy,” the firm noted, and AWS doesn’t see the benefits of growing ChatGPT usage that Microsoft does due to Microsoft’s close relationship with the AI chatbot’s maker, OpenAI.

AWS benefits from the close relationship it has with Claude AI model maker and OpenAI rival Anthropic. Anthropic is estimated to reach $10 billion in revenue in 2026 and $19 billion in 2027. The AI upstart has likely contributed about 60 basis points to AWS growth, and the number should expand to about 150 basis points or more, according to a July report by Morgan Stanley.

Growing GenAI Market

Jassy told call listeners the generative AI market is still too young for measuring share, and AWS expects spend on training AI models—where AWS’ share lags—will shift to inference spend in the long run, where AWS has a stronger footing, according to the investment firm. On the call, Jassy said that Amazon’s Trainium chips show 30 percent to 40 percent better price performance compared with popular GPUs.

And partners shouldn’t forget the overall AWS GenAI opportunity as a business with a multibillion-dollar revenue run rate growing in the triple-digit percentage range, not to mention an immense opportunity in cloud migration with 85 percent to 90 percent of IT spend still on-premises.

Bank of America increased its expected AWS growth rate in the third fiscal quarter from 17 percent to 17.7 percent but lowered the expected margin to 33 percent given Amazon’s additional spending.

Continued Innovation, Satellite Internet

Amazon has not taken its foot off the innovation pedal, Jassy assured analysts on Thursday, both directly in AI and in other areas of the business.

Amazon’s open-source AI SDK, Strands, reached 2,500 stars on GitHub, Jassy said. Amazon’s Kiro agentic integrated development environment coding agent amassed several hundreds of thousands of developers using or requesting access in the first couple weeks of its release.

Jassy also told analysts to look forward to growth in Amazon’s Starlink competing satellite internet service, called Project Kuiper.

“If you think about enterprises and governments, a lot of what they want to do when they take the data down from space is they actually want to put it into a cloud to do analysis, analytics and AI and various operations on top of it,” Jassy said. “The fact that Project Kuiper and AWS are so seamlessly connected is very attractive to enterprises and to governments. I’m kind of amazed—we haven’t launched Project Kuiper yet, but the number of enterprise and government agreements that have been signed already to use Project Kuiper is impressive.”

Kuiper monetization could start later this year, investment firm Wedbush said in a report. Time will tell if AWS partners can find new opportunities once the business gets rolling

Tariff Uncertainty Continues

For anyone in the channel looking to e-commerce giant Amazon.com for a sign of what global tariffs means for the economy, Jassy said it was hard to know what the future holds.

“We just don’t know what’s going to happen moving forward,” the CEO said on Thursday’s call. “It’s hard to know where the tariffs are going to settle, particularly in China. It’s hard to know what will happen when we deplete some of the pre-buys that we did on our own first-party retail and then some of the forward-deploying that we saw of our third-party selling partners.”

Jassy said that he is unsure who will end up absorbing higher item costs if they go up over time. Although things could change in the second half of 2025, in the first half, “we just haven’t seen diminished demand, and we haven’t seen any kind of broad scale ASP [average selling price] increases,” he said.