Amazon: Wide Moat, Slowing Boat – Is the Market Underestimating Its AI and Cloud Resilience?

The tech sector’s current infatuation with growth stocks has left value investors scratching their heads. NVIDIA and Microsoft, with their explosive AI-driven revenue gains, trade at premium valuations, while Amazon, despite its dominant cloud business and aggressive AI infrastructure bets, is viewed as a laggard. But is this a mispricing, or a rational response to Amazon’s slower growth? The answer lies in dissecting the interplay between Amazon’s wide moat—its AWS dominance—and the market’s impatience for immediate returns in an AI arms race.

AWS: A Fortress with Friction

Amazon Web Services (AWS) retains a 30% share of the global cloud market, outpacing Microsoft (20%) and Google Cloud (13%) [1]. Yet its 17.5% year-over-year revenue growth in Q2 2025 pales next to Azure’s 39% and Google Cloud’s 32% [1]. This disparity has fueled skepticism about AWS’s ability to compete in the generative AI era. However, AWS’s operating income of $10.2 billion in Q2 2025—second only to Microsoft’s $12.1 billion—underscores its profitability [1]. The real story is in margins: AWS’s 32.9% operating margin, while down from 39.5% in Q1 2025, remains robust, driven by AI infrastructure optimizations [2].

The friction lies in infrastructure bottlenecks. AWS faces a $195 billion backlog of unfulfilled customer demand, a testament to its entrenched position but also a drag on near-term growth [1]. Meanwhile, Microsoft’s Azure benefits from OpenAI partnerships and Google Cloud’s AI-first strategy, which have accelerated their adoption curves. Yet AWS’s long-term resilience is underpinned by its scale and capital discipline.

Valuation: The Value Investor’s Dilemma

Amazon’s valuation metrics tell a different story. With a trailing P/E of 34.93 and a P/S of 3.61, it trades at a discount to Microsoft (P/E 37.15, P/S 13.54) and NVIDIA (P/E 43.95, P/S 24.55) [3]. This gap reflects the market’s prioritization of growth over stability. Microsoft’s Azure, with its 39% growth, and NVIDIA’s Blackwell GPUs, which powered a 122% revenue surge in Q2 2025, are seen as the darlings of the AI era [4]. Amazon, by contrast, is viewed as a “slow boat”—a company with a dominant business but one that’s not delivering the fireworks investors crave.

But this undervaluation may be a feature, not a bug. Amazon’s forward P/E of 35 is a stark contrast to its historical ratios, which often exceeded 100 [5]. The company’s capital expenditures—projected to hit $118 billion in 2025, a 43% jump from 2024—signal a long-term play [2]. These investments in AI innovation campuses, custom silicon, and data centers are designed to secure AWS’s dominance in the next phase of cloud computing.

AI Infrastructure: The Long Game

Amazon’s AI strategy is less about flashy products and more about building the rails for the future. The $100 million expansion of the AWS Generative AI Innovation Center, doubling its 2023 funding, is a case in point [6]. This initiative focuses on agentic AI—systems that can autonomously execute complex tasks—and has already delivered tangible results, such as a 74% reduction in data processing times for Jabil and AI-powered platforms like Cropwise AI for agriculture [6].

The company is also launching the 2025 Generative AI Accelerator (GAIA), offering startups up to $1 million in AWS credits and mentorship [6]. By nurturing a pipeline of AI startups, AWS is positioning itself as the go-to infrastructure provider for the next wave of innovation. Meanwhile, its $30 billion data center investments in Pennsylvania and North Carolina are creating AI innovation hubs, with a focus on workforce development and regional economic growth [7].

Investor Frustrations and the Path Forward

The market’s impatience is understandable. AWS’s growth rate has lagged, and its operating margins dipped in Q2 2025 [2]. Microsoft’s Azure, with its 33% Q2 growth and AI-driven ecosystem, and NVIDIA’s Blackwell GPUs, which powered 70% of its data center revenue, have captured the imagination of investors [4]. Amazon’s stock, meanwhile, trades at a discount to its peers, despite its dominant cloud business and improving margins.

Yet this undervaluation may be a strategic opportunity. Amazon’s AI infrastructure investments are designed to pay off over the long term, not the next quarter. The company’s operating income from AWS alone—$22 billion in the first half of 2025—provides a buffer to absorb short-term margin pressures [5]. Analysts project 20.5% earnings growth for 2025 and 22.7% in 2027, suggesting that the market’s skepticism may be misplaced [5].

Conclusion: Wide Moat, Strategic Patience

Amazon’s AWS is a fortress, but its slower growth has led to a valuation discount. The market’s focus on near-term AI-driven revenue gains has overshadowed AWS’s long-term infrastructure bets and improving margins. While Microsoft and NVIDIA may be the darlings of the moment, Amazon’s conservative valuation and strategic investments in AI infrastructure suggest that the market is underestimating its resilience. For investors willing to play the long game, Amazon’s wide moat—built on scale, innovation, and capital discipline—may yet prove to be a compelling value proposition.

Source:
[1] AWS Vs. Microsoft Vs. Google Cloud Earnings Q2 2025 [https://www.crn.com/news/cloud/2025/aws-vs-microsoft-vs-google-cloud-earnings-q2-2025-faceoff]
[2] Amazon's AI-Driven Future: Is the Stock's Pullback a Strategic Entry Point [https://www.ainvest.com/news/amazon-ai-driven-future-stock-pullback-strategic-entry-point-2508/]
[3] Amazon.com (AMZN) Statistics & Valuation [https://stockanalysis.com/stocks/amzn/statistics/]
[4] Nvidia's Earnings as a Barometer for AI-Driven Market Sentiment [https://www.ainvest.com/news/nvidia-earnings-barometer-ai-driven-market-sentiment-2508-10/]
[5] Amazon's Stock Now Trades at a Low(er) Valuation. Time [https://www.nasdaq.com/articles/amazons-stock-now-trades-lower-valuation-time-buy]
[6] AWS doubles investment in AWS Generative AI Innovation Center [https://aws.amazon.com/blogs/machine-learning/aws-doubles-investment-in-aws-generative-ai-innovation-center-marking-two-years-of-customer-success/]
[7] Amazon doubles down on AI infrastructure with $30B in new US data center investments [https://www.datacenterfrontier.com/hyperscale/article/55295967/amazon-doubles-down-on-ai-infrastructure-with-30b-in-new-us-data-center-investments]