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Amazon’s Cloud Business Faces Crucial Test After Rivals Microsoft and Google Struggle

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Amazon is under intense pressure as it prepares to report its fourth-quarter results on Thursday, with high expectations surrounding its cloud business amid growing concerns over Big Tech’s investments in artificial intelligence (AI). After disappointing earnings from Microsoft and Google, which fueled investor concerns about the costs of AI, Amazon’s performance could be a pivotal moment in the tech sector.

Shares of major tech companies surged in recent years, driven by the belief that the AI boom and its massive data center needs would sustain growth. However, these expectations were rattled when DeepSeek, a Chinese AI startup, announced breakthroughs at a fraction of the cost, causing a selloff in tech stocks.

Despite these challenges, Amazon may be in a stronger position than its rivals, analysts say. Amazon Web Services (AWS), the world’s largest cloud services provider, is poised to report a 19.3% revenue growth, its highest increase in eight quarters. The company is also expected to benefit from its early embrace of DeepSeek’s AI models and plans to release its generative AI voice service, Alexa, later this month.

While Microsoft and Google face slowing cloud growth, Amazon has maintained optimism about its cloud business. Some analysts believe that Amazon has regained ground in the AI race, thanks to its increased investment in companies like Anthropic and a broad selection of AI models available through AWS. “We believe AWS is regaining share,” said Gil Luria, an analyst at D.A. Davidson, highlighting Amazon’s strength in AI despite initial slower growth compared to Microsoft and Google.

Amazon’s valuation remains higher than its competitors, with a forward price-to-earnings ratio of nearly 39, compared to Microsoft’s 29 and Alphabet’s 22.4. This strong position could help Amazon surpass market expectations and emerge as a leader in the AI-driven cloud market.

In addition to its cloud growth, Amazon is benefiting from a strong retail performance. Analysts expect Amazon’s North American sales to rise 9% in the fourth quarter, fueled by a successful holiday shopping season. Increased consumer spending, particularly in e-commerce, and Amazon’s expansion into groceries, pharmacy, and fashion are expected to propel its growth in the retail sector.

With a favorable holiday season and a competitive edge in AI, Amazon’s upcoming report could restore confidence in the tech giant, positioning it for long-term success.

 

Alphabet Shares Drop Amid Cloud Growth Concerns and Rising AI Spending

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Alphabet’s stock dropped by 8% on Wednesday, driven by investor concerns over the company’s slowing cloud growth and planned capital expenditures of $75 billion for the year. This marks a significant shift for the Google parent, highlighting fears surrounding the escalating costs of artificial intelligence (AI) development.

The company’s quarterly cloud revenue grew by 30%, slower than the 35% increase seen in the previous quarter, and missed market expectations. This decline mirrors challenges faced by its larger cloud rival, Microsoft. Analysts have indicated that these results mark a shift in Google’s business model, moving from its capital-light, high-margin search advertising business to a more capital-intensive, AI-driven approach.

The projected increase in capital expenditures (CapEx) for 2025 is 29% higher than analysts’ estimates. Alphabet has indicated that it will prioritize costly AI investments to avoid falling behind competitors, a strategy that has raised concerns among investors looking for a clearer path to AI-driven profits. Analysts such as Gil Luria from D.A. Davidson expressed worry that Alphabet might be heading down the same path as Microsoft, facing the challenges of high AI costs without immediate returns.

Alphabet’s concerns were further compounded by the rise of China’s DeepSeek, a low-cost AI model that has spurred debate about the high expenses of AI development by Big Tech companies. Despite better-than-expected ad revenue performance, the heightened CapEx and cloud struggles have overshadowed the positive results.

Analysts have responded to the concerns by cutting their price targets on Alphabet’s stock, with some expressing doubts about the company’s ability to capture a significant share of the cloud market. Alphabet’s shares remain the cheapest among the major U.S. cloud providers, with a 12-month forward price-to-earnings ratio of 22.7, lower than Amazon’s and Microsoft’s ratios.

 

AMD’s $4.9 Billion Acquisition of ZT Systems Faces EU Antitrust Review

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The European Union’s antitrust regulators are set to make a decision by March 12 on U.S. chipmaker AMD’s $4.9 billion acquisition of server manufacturer ZT Systems. AMD announced the acquisition in August 2024, which aims to strengthen its portfolio of artificial intelligence (AI) chips and hardware to better compete with rivals such as Nvidia.

ZT Systems specializes in AI infrastructure, serving some of the world’s largest hyperscale computing companies, including Microsoft and Meta Platforms. The EU’s preliminary review could result in the deal being approved, either with or without conditions. However, if the European Commission has significant concerns, it could initiate a four-month investigation into the deal.

This acquisition is part of AMD’s strategy to expand its presence in the AI sector, where it faces intense competition from Nvidia, which currently dominates the AI chip market.