Amazon Q1: Cloud Holds Steady, Tariffs Cloud the Core Business

Amazon delivered a solid first quarter, but failed to match the breakout growth Microsoft showed for Azure earlier this week.

On the call, CEO Andy Jassy used a baseball analogy to frame AI's role in AWS:

"We're not even in the second strike of the first batter of the first inning. It's very early. […] Our AI business is running at a multi-billion dollar annualized revenue run rate, continues to grow triple digits year-over-year, and is still very early."

AI remains the headline act, with growth limited only by infrastructure — Amazon plans to spend $100 billion in CapEx in FY2025 to fix that, mostly on AI compute.

But there are other factors at play: tariffs, FX headwinds, and costs tied to Project Kuiper as Amazon builds its LEO satellite network to challenge Starlink.

Let's break down the quarter and the key shifts across Amazon's business.

Article overview:

• Amazon Q1 FY25

• Recent developments

• Key call takeaways

• Kuiper, Prime, and what's next

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1. Amazon Q1 FY25 P&L:

Revenue breakdown:

I.💻 Online stores (37% of revenue): Amazon.com +5% YoY

II.🏪 Physical stores (4%): mostly Whole Foods, +6% YoY

III.🧾 Third-party (23%): commissions, fulfillment, shipping, +6% YoY

IV.📢 Advertising (8%): seller ads, Twitch, +18% YoY

V.📱 Subscriptions (9%): Amazon Prime, Audible, +9% YoY

VI.☁️ AWS (19%): compute, storage, database, others, +17% YoY

VII.Other (1%): various, individually small, +4% YoY

• Revenue +9% YoY to $155.7B (vs. $6B YoY growth)

• Excluding AWS:

• North America revenue +8% YoY to $92.9B

• International revenue +5% YoY to $33.5B

• Gross margin 51% (+1pp YoY)

• Operating margin 12% (+1pp YoY)

• AWS: margin 39% (+2pp YoY)

• North America: margin 6% (+1pp YoY)

• International: margin 3% (flat YoY)

• EPS $1.59 (+$0.23 YoY)

Cash flow (TTM):

• TTM operating cash flow $114B (+15% YoY)

• TTM FCF $26B (-48% YoY), driven by operating cash flow growth offset by 80% CapEx growth to $88B

Balance sheet:

• Cash, equivalents, and marketable securities: $95B

• Long-term debt: $53B

Q2 FY25 guidance:

• Revenue +7% to 11% YoY (beat by ~$400M)

• Operating income $13B to $17.5B (vs. consensus $17.8B)

So how to read this?

One-time items: Revenue faced a $1.4B headwind from FX and leap year. Excluding those, revenue grew 10% YoY. On the flip side, net income got a boost from unrealized gains on the Anthropic investment revaluation.

Tariffs cloud Q2: Amazon beat Q1 but issued cautious Q2 guidance. Management cited tariffs, trade policy, and recession fears — a shift from prior messaging.

Potential pull-forward: CEO Andy Jassy noted "incremental purchasing" in certain categories, suggesting some shoppers may be stocking up ahead of price increases. For now, prices haven't changed materially, but third-party sellers remain at risk.

Third-party growth slows: Third-party seller services revenue grew just 6% YoY, the slowest in years, as sellers face rising costs and uncertainty. That has knock-on effects for Amazon's ad business, which remains strong (+18% YoY) but is vulnerable to SME budget cuts.

AWS steady despite constraints: AWS revenue grew 17% YoY, slightly below expectations. Compared to Microsoft Azure's accelerating growth, AWS looked flat, raising questions about near-term momentum.

Margin pressure: Q2 operating income guidance came in below Wall Street consensus. Some Kuiper launch costs will hit the P&L (more on that later), creating variability. Also, analysts worry Amazon may absorb some tariff-related costs to keep prices low. CapEx and AI remain front and center: Amazon reiterated its $100B 2025 CapEx plan, mostly on AI infrastructure.

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2. Recent developments

VIII.🚢 Tariffs cast a shadow over Amazon

The impact of tariffs is starting to show. Since early April, hundreds of Amazon sellers have raised prices, with SmartScout estimating increases of nearly 30% in some categories.

While Amazon says the impact is limited, the risks to its marketplace model — broad selection and low prices — are real.

Over 50% of Amazon sellers are based in China (Marketplace Pulse).

Many US sellers also source heavily from China.

Supply chain shifts to Mexico, India, etc. could take years.

Cost increases could ripple through Prime, ads, and fulfillment margins.

It's less about Q1 results and more about how tariffs will reshape Amazon's e-commerce engine in coming quarters.

Some analysts warn that prolonged tariffs could reduce selection, raise prices, and pressure Amazon's most profitable business.

🧨 Political backlash: This week, reports that Amazon would display tariff costs at checkout put it in the political crosshairs. Amazon said the idea was only considered for its competitor Amazon Haul, not its main site. But the nuance was lost. The White House called it a "hostile political act," prompting Trump to call Jeff Bezos directly. Amazon quickly clarified the idea was "never approved." The episode highlights how quickly misinformation can escalate and how Amazon's actions are now viewed through an increasingly partisan lens.

IX.☁️ AWS market share and margins

In Q1 2025, total cloud infrastructure market spending grew 23% YoY to $94B, up from 22% in Q4 2024. Without a 2-point FX headwind, growth would have been faster. GenAI remains a key growth driver.

AWS held 29% market share, vs. Microsoft Azure at 22% and Google Cloud at 12%. Synergy Research Group estimates AWS lost 1pp share to Azure overall. Some of the fastest-growing second-tier cloud providers include CoreWeave, Oracle, Snowflake, Databricks, and Snowflake.

For the March quarter:

• Google Cloud +28% YoY (slowed from 30% in Q4).

• Microsoft Azure +33% YoY (accelerated from 31% in Q4).

• AWS +17% YoY (slowed from 19% in Q4).

As always, I wouldn't read too much into Azure and Google Cloud growth rates vs. AWS, as they are all capacity-constrained and have different product mixes.

What about margins? AWS operating margins continue to rise. Management warns of volatility as AI investments flow through the P&L. AI may pressure margins in the near term, but management expects AI margins to match non-AI margins over time.

While AWS operating margins improved 2pp to 39%, this was largely due to an accounting change (extended server useful life).

X.🤖 The three layers of the AI stack

Amazon is actively building across all three layers of the AI stack — infrastructure, models, and applications.

Andy Jassy provided some updates:

XI.⚙️ 1) Infrastructure

Amazon is scaling its AI infrastructure with a mix of custom and NVIDIA chips:

• Its second-gen AI chip Trainium 2 is deploying at scale, offering 30-40% better price-performance vs. comparable GPU instances.

• Demand exceeds supply. Jassy confirmed AWS is adding capacity as fast as possible, but supply chain constraints (e.g., motherboards) are still easing.

• Project Rainier, an AI supercluster powered by Trainium 2 and built with Anthropic, is in the works.

• Amazon sees lowering inference costs as a core mission to drive mainstream AI adoption.

XII.🧠 2) Models

Amazon Bedrock — its LLM-as-a-service platform — is expanding rapidly:

• Recent model additions include Claude 3.7 (Anthropic), Llama 4 (Meta), DeepSeek R1, and Mistral's Pixtral Large.

• Amazon's own Nova family of foundation models is also evolving. The Nova Premier model launched this quarter, with customers including Slack, Coinbase, FanDuel, and Siemens.

• Nova Sonic, Amazon's new speech-to-speech model, offers low error rates and more human-like expression.

Amazon is also exploring action-oriented AI agents:

• Nova Act is a new model trained to complete tasks in web browsers (search, checkout, upsell).

• The goal is to raise accuracy on multi-step tasks from 30% to 90%+, enabling complex AI workflows.

XIII.📱 3) Applications

Amazon is embedding generative AI across its ecosystem:

• Amazon Q: a full-stack assistant for developers, now supporting agentic coding workflows, multi-step refactoring, and automated code reviews in Git environments.

• Alexa+: a major AI upgrade coming soon. Now capable of multi-step actions (adjust lights, temp, music), not just answering questions.

• AI is now embedded across Amazon — from fulfillment and shopping to Prime Video and ads.

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3. Earnings call highlights

CEO Andy Jassy on tariffs: "We are doing everything we can to keep prices low for consumers in an economically rational way. […] We are more likely to see some sellers decide to take share rather than pass all or some of the tariff on to consumers."

Jassy believes Amazon's scale, pricing power, and selection will help it gain share, similar to during the pandemic.

On China impact: "Amazon is not the only retailer affected by tariffs. […] Retailers that don't source directly from China typically buy from companies that do, and mark up those goods […] Their total tariff will be higher than direct Chinese sellers."

That's a key distinction. Amazon's marketplace model may be more resilient to tariffs than competitors that rely more on traditional wholesale and resale channels.

On AWS capacity:

"We are consuming capacity as fast as we can put it in. […] Demand is very high right now, but I believe supply chain issues and capacity issues will continue to improve over time."

Given Amazon's CapEx exceeds any other big tech company in 2025, AWS results could see relative upside in H2 as new capacity comes online.

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4. Kuiper, Prime, and what's next

XIV.🛰️ Kuiper's rocky start

Amazon's $10B satellite broadband project is making progress — but it's not smooth sailing yet.

Progress:

• Production delays: Only a few dozen Kuiper satellites built earlier this year, far from the 1,600 needed by mid-2026 to meet FCC deployment rules.

• Manufacturing challenges: Complex design, supplier issues, and in-house production have slowed ramp.

• First launch success: This week, Amazon successfully launched 27 Kuiper satellites on a ULA Atlas V rocket — the first of 80+ launches needed to build a 3,200-satellite constellation.

Stakes:

• Regulatory risk: Amazon must deploy half its constellation by July 2026 or risk losing its FCC license (though an extension is possible).

• Political headwinds: SpaceX CEO Elon Musk is advising the White House. Amazon's relationship with President Trump is less smooth by comparison.

Big picture:

• Starlink dominance: SpaceX already has 5M+ customers and 8,000+ satellites in orbit, launching almost daily.

• Reputation gap: Starlink's recent cancellations in the UK and Canada — partly due to Musk's politics — open a potential opportunity for Kuiper.

• Amazon's path forward: The company says Prime service is still on track to launch later this year, but time is tight.

XV.🛒 Prime's distribution advantage

Q1 ad revenue hit $13.9B, representing:

• 27% of Google search ad revenue (+2pp YoY)

• 33% of Meta ad revenue (flat YoY)

• 156% of YouTube ad revenue (+10pp YoY)

In 2024, Amazon moved all Prime Video users to its ad-supported tier unless they pay $2.99/month to remove ads.

• In March 2025, Prime Video accounted for 3.5% of US TV viewing time (Nielsen), nearly half of Netflix's share, up 0.7pp YoY.

• US Prime members grew 9% YoY to 196M (CIRP), giving Amazon distribution power far beyond Netflix's 90M US subscribers.

While most join Prime for shipping, Prime Video engagement is clearly rising.

New antenna data shows the power of Amazon Channels:

• In Q4 2024, after adding Apple TV+, Amazon Channels attracted 1.5M new sign-ups, accounting for 25% of all Apple TV+ registrations by December.

• 73% were new to Apple TV+, vs. just 48% new via Apple's own iTunes.

• Notably, this isn't a churn recovery story — 2.8M Apple TV+ users canceled via iTunes, and only 47K re-subscribed via Channels.

Takeaway: Third-party distribution isn't just a retention tool; it's a growth engine. In a competitive streaming market, distribution is a moat. And Amazon owns the channel.

XVI.Sources

1. How they make money?-☁️ Amazon: First Inning for AIhttps://www.appeconomyinsights.com/

Risk disclaimer: The views expressed are for informational purposes only and do not represent investment advice. Market risk exists; invest with caution.