Amazon Web Services Flexes Its Muscles, but There Are a Few Precautions to Take

Amazon

Amazon’s (NASDAQ:AMZN) most recent earnings report was well-received by investors, as Amazon Web Services (AWS) and a number of the company’s other sectors demonstrated robust growth, garnering plaudits from industry analysts. And while AWS continues to grow at a solid 33% year-over-year rate, some Wall Street analysts say there are some aspects of the tech giant’s cloud platform that investors should be aware of.

Wolfe Research analyst Deepak Mathivanan, who has an outperform recommendation on Amazon (NASDAQ:AMZN), stated that AWS margins declined 6% sequentially in the company’s second quarter, primarily due to an increase in stock-based compensation and increased power expenses. Mathivanan also noted that growth fell from the first quarter to the second, from 37% to 33%.

JMP Securities analyst Nicholas Jones, who has a market outperform rating on Amazon (NASDAQ:AMZN), stated that AWS, which competes with Microsoft’s (NASDAQ:MSFT) Azure, Google’s (NASDAQ:GOOGL) Cloud Platform, and other offerings from Oracle (NYSE:ORCL), among others, had a lower operating income of $5.7B compared to the $6B that was expected.¬†

In light of slower cloud growth from Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL), AWS’s quarterly revenue of $19.7B should be seen favorably, but operating expenses are meaningless, Jones added. Jones also stated that Amazon’s (NASDAY:AMZN) AWS backlog grew by 65% year-over-year and 13 % sequentially, as Amazon (NASDAQ:AMZN) recruited numerous new clients in the quarter, including Delta Air Lines, Riot Games, Jefferies & Geissinger, and others.

However, there are some concerns that a worldwide economic slowdown could affect AWS, even though demand remains robust, as indicated by the company’s backlog and additional investments.

To be clear, Amazon’s (NASDAQ:AMZN) management has not stated that a slowdown is imminent due to macroeconomic factors; instead, there is the possibility, as in 2008 and 2020, that a “relatively lower-cost cloud option” may be preferable to in-house development. Amazon (NASDAQ:AMZN) has done an excellent job of selling its cloud services as competing with those of Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL), and others.

As with everything in life, though, nothing is flawless, not even Amazon’s (NASDAQ:AMZN) 800-pound giant is flawless.

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