This 1 Thing Is Really Bugging Me About Amazon Web Services

Any investor keeping tabs on e-commerce giant Amazon (NASDAQ: AMZN) probably already knows how important its cloud computing arm is to the company's bottom line. For those who don't, the bulk of its revenue still comes from selling merchandise to online shoppers, 58% of last year's operating profits came from Amazon Web Services, even though this business only made up 17% of Amazon's total sales. That allows Amazon's sizable cloud-based cash flow to help fund a lot of different growth initiatives. And it is!

This proverbial gravy train might not be quite as impressive in the foreseeable future as it's been in the recent past, though. While Amazon Web Services still seems to enjoy a decent degree of pricing power, if AWS' market share trend is any indication, that could be changing soon. This sets the stage for narrower profit margins, and ultimately less net profits.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

AWS is losing market share

Technology market research outfit Synergy Research Group keeps track of the numbers, reporting how much the world spends on cloud computing services each and every quarter. As has been the case for some time now, Amazon Web Services remained the single-biggest name in the business through Q1 of this year, maintaining its lead on Microsoft's and Alphabet's Google cloud businesses.

That lead is narrowing, though. Indeed, as the chart of Synergy's recent historical data illustrates, Amazon Web Services' share of the world's cloud computing sales fell to a multi-year low (maybe a record low?) 29% during the first quarter of 2025. That lull not only extends a downtrend that's been underway since early 2023, but accelerates it.

Data source: Synergy Research Group. Chart by author.

That's not to suggest Google and Microsoft are solely responsible for this market-share setback. While both clearly gained share through 2022 and into 2023, both of these big names have also struggled to win cloud business of late. Much of Amazon's recent loss of market share is to mostly unknown "other" providers. This makes sense -- as the industry matures, cloud computing clients are looking for the more specialized options and features that only the smaller cloud computing companies may offer.

Regardless, Amazon Web Services is clearly losing market share. And it certainly doesn't want to.

Still profitable enough ... for now

It hasn't mattered much yet. Indeed, AWS' revenue is still technically growing faster than the arm's operating costs are, allowing for still-widening profit margins through the first quarter of 2025.

Data source: Amazon. Chart by author.

Think bigger picture, though, and longer term. The cloud computing business is clearly competitive, and even its smaller players are now in a position to push back against the so-called "Big Three." While there's been enough industrywide growth for all these service providers to go around, we may be at a turning point on this front. If its growth rate slows -- as is usually the case once a business matures -- look for cloud's commoditization to kick off a price war.

Price wars, of course, punch profit margins.

Just keep your finger on the pulse of this business

Don't panic if you currently hold a stake in Amazon; this isn't exactly a reason in and of itself to avoid a position in Amazon, either. There's still good money to be made in the business, and Amazon is well-positioned to earn its fair share of it.

Don't be naïve, either, however. Amazon stock has been and remains priced as if AWS will remain the powerhouse profit producer it's been up until this point. Now this once-reliable presumption is in question. Even the smallest red flag on this front could take an oversized toll on Amazon stock, sparked by unexpected disappointment.

In other words, just keep your finger on the pulse of this business to make sure you're not completely blindsided by one of its upcoming quarterly reports. One of the two charts above is going to have to change directions sooner or later, and likely sooner than later.

Should you invest $1,000 in Amazon right now?

Before you buy stock in Amazon, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $828,224!*

Now, it’s worth noting Stock Advisor’s total average return is 979% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 2, 2025

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. James Brumley has positions in Alphabet. 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.