Amazon's E-commerce Struggles as Cloud Surges Ahead

Amazon's Struggle with AI and Investor Confidence

Amazon’s significant investment in artificial intelligence has not yet captured the attention of investors, resulting in a modest 3% increase in its stock price in 2025. This is considerably lower than the S&P 500’s 7% gain and far behind Meta’s impressive 20% rise. While other tech giants have seen their shares soar due to growing interest in AI, Amazon remains relatively stagnant.

Artificial intelligence has once again become a key differentiator between successful and struggling technology companies. Early this year, Amazon's stock fell due to concerns that affordable AI models from China could flood the market. However, optimism has since returned as the company continues to explore ways to leverage AI effectively.

Microsoft, Meta, and Nvidia are among the top contributors to the S&P 500’s gains in 2025, according to Bloomberg. Apple, on the other hand, is perceived as moving more slowly in the AI space, which has led to some setbacks.

Portfolio manager Brian Recht of Janus Henderson notes that the market is not giving Amazon much credit for its AI initiatives. He believes that investors are waiting to see tangible results from Amazon’s use of AI to improve profitability. Recht expects that evidence of AI benefits will become clearer in the coming quarter.

Amazon's E-Commerce Challenges and Cloud Growth

Amazon's diverse business portfolio, including cloud computing and advertising, typically provides a buffer against market fluctuations. However, recent tariffs are putting pressure on its primary online shopping business, which still generates the majority of its revenue.

While most attention is focused on Amazon Web Services (AWS), analysts anticipate an increase in demand for cloud rentals as businesses rush to train and run AI models. Recht argues that the retail side of Amazon may also experience significant impacts. The company sees AI as a tool to better match ads, guide customers to the right products, and reduce costs in warehouses and delivery networks.

Amazon has also introduced "Rufus," a chatbot designed to assist shoppers by providing product choices, review summaries, and price comparisons. As the company prepares to release its second-quarter results on July 31, Wall Street's consensus points to earnings of $1.32 per share on sales of $162 billion. These figures would represent year-over-year increases of 4% and 9%, respectively.

For the Magnificent Seven group of major tech companies, average profit is expected to rise by 15% with revenue growth of 12%. Amazon’s capital spending reflects its commitment to AI and expansion. With an expected $104 billion in 2025, the figure is the largest in the S&P 500. This includes investments in servers, networking gear, and physical infrastructure necessary for the delivery network. In June, Amazon announced plans to spend at least $30 billion on data centers in Pennsylvania and North Carolina.

Automation and Workforce Adjustments

Amazon is also focusing on savings from automation. Recently, the company reduced jobs in its cloud unit, citing the need to "optimize resources" and invest in new projects. CEO Andy Jassy has mentioned that a smaller workforce is expected over the next few years as AI takes over repetitive tasks.

Robotics and Future Potential

In June, reports indicated that Amazon is testing an indoor obstacle course to train humanoid robots aimed at speeding up parcel handling. Bank of America estimates that using such machines could save over $7 billion annually by 2032.

Morgan Stanley analysts recently highlighted that these potential savings make the retail division "the most under-appreciated GenAI beneficiary in the tech space." Irene Tunkel, chief U.S. equities strategist at BCA Research, agrees. She notes that retail margins are narrow, so Amazon needs every productivity boost it can get, and there are numerous applications for AI and robotics within warehouses. Tunkel expects the benefits to unfold over five to ten years and believes Amazon’s early lead gives it a competitive advantage.

Whether investors will reward this lead remains to be seen, but the upcoming release of Amazon’s next set of financial results will provide further clarity.