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Amazon (AMZN -9%) is pulling back pretty sharply despite reporting strong upside with its Q2 report. AMZN reported its fifth consecutive $0.20+ EPS beat while revs jumped 13.3% yr/yr to $167.7 bln, its strongest yr/yr growth since 4Q23. AMZN also provided upside revenue guidance for Q3. Despite all of this, it seems investors are a bit letdown by its AWS segment. It is growing nicely, but not the gangbusters we are seeing from peers Azure and Google Cloud.

• Let's start with the Stores segment. AMZN saw growth of +11% CC in North America to $100.1 bln, an acceleration from +8% CC in Q1. International sales surged 16% yr/yr to $36.8 bln. However a lower dollar helped there. Growth was +11% CC, but still a nice improvement from +8% CC in Q1. AMZN says it has not yet seen diminishing demand surrounding tariff concerns, but a lot is still unknown.
• Amazon AWS segment sales rose 17.5% yr/yr to $30.87 bln with growth in both its generative AI business and non-generative AI offerings as companies turned their attention to newer initiatives, bring more workloads to the cloud etc. However, it sounds like analysts were a bit disappointed in the growth from AWS. Just this week, we saw +39% CC growth from Azure and Google Cloud reported +32% revenue growth last week.
• When asked why the #2 and #3 players were growing more, AMZN noted it has a meaningfully larger business with its AWS segment. AMZN also said it varies by quarter, sometimes AWS is growing faster. These are all really just moments in time. AWS also said it has better operational performance, in terms of availability, durability, latency etc. AMZN explained that AWS has more demand than capacity right now, so it could be doing more revenue. AMZN also says its AWS segment currently has a $123 bln annual run rate, yet it's still early in this industry and AMZN remains very bullish.
• Turning to Advertising Services, segment revenue grew +22% CC to $15.69 bln, an acceleration from +19% CC in Q1, +18% CC in Q4, +19% CC in Q3. Growth was driven by sponsored products as it saw strong traffic in its Stores. AMZN also recently announced a momentous partnership with Roku, giving advertisers access to 80 mln connected TV households. It also announced an integration between Disney's Real-Time Ad Exchange and Amazon DSP.

Overall, the headline numbers were very good, but investors are getting hung up on the somewhat lackluster AWS growth. We just saw a report this week from Microsoft (MSFT) and last week from Alphabet (GOOG). Their Azure and Google Cloud units were just rocking the top line growth. In fairness, AWS is larger so it's tougher to grow at same amounts, but still. Investors were not as impressed with AWS as its peers and this is weighing on shares.