Amazon (AMZN) posted first-quarter results that exceeded Wall Street’s expectations. However, the upbeat performance wasn’t enough to boost its stock. Despite the earnings beat, AMZN stock remained subdued as investors focused more on the slower-than-anticipated growth in its cloud computing division, AWS. Moreover, lingering concerns about macroeconomic uncertainty and potential tariffs remained a drag.

AWS growth has become somewhat unpredictable as businesses’ pace of adopting cloud solutions can fluctuate with economic cycles. Moreover, capacity considerations and technology advancements could shift enterprise adoption timelines. This unpredictability weighed on market sentiment, even though AWS continues to perform well and is a key growth catalyst of Amazon’s business.

In Q1 2025, AWS revenue growth decelerated to 17% year-over-year, down from 19% in the previous quarter. While that slowdown sparked some concern, management pointed to a substantial backlog of deals. The company will focus on bringing on an increasing amount of capacity in the back half of the year, an encouraging sign that growth could pick up again.

Outside of the cloud, Amazon’s retail business continues to show strength. The company’s vast product selection, competitive pricing, and rapid delivery times are helping it navigate challenges like import tariffs. These core advantages position Amazon as a dominant player in the e-commerce and tech space and may help cushion the impact of near-term headwinds. Let’s delve into the details.

AMZN’s AWS to Deliver Solid Growth

Amazon’s AWS segment continues to grow and now boasts an annualized revenue run rate of $117 billion. In the first quarter, Amazon secured a series of enterprise deals, strengthening AWS’s competitive positioning as businesses increasingly move their workloads to the cloud. This trend includes traditional cloud migrations and the recent wave of generative AI adoption. AWS’s ability to address both generative AI and non-generative AI workloads puts it in a solid position to capture future growth.

The AWS backlog stood at $189 billion in Q1, up 20% from the previous year. With an average contract life of over four years, the company’s solid backlog will support future growth.

Meanwhile, Amazon’s AI-related offerings are already operating at a multi-billion-dollar annual run rate and are growing at a triple-digit pace. To keep up with surging demand, Amazon is adding more infrastructure and capacity, which should drive even more revenue in the coming quarters. From proprietary AI chips to model hosting and training tools, AWS is building a compelling tech stack for the next era of cloud computing, which will drive the segment’s performance in the coming quarters.

Amazon’s Retail Business to Sustain Momentum

Amazon’s core retail business remains strong. While macroeconomic uncertainty and trade-related tariffs may pose short-term challenges, Amazon’s focus on pricing, product selection expansion, and delivery speed continues to resonate with consumers. Prime membership remains another bright spot, driving loyalty and recurring revenue even in tougher economic times.

One of Amazon’s most significant differentiators in recent years has been its delivery infrastructure. The company has driven stronger sales and deeper engagement from its Prime base by slashing delivery times. That faster delivery promise is key to Amazon’s long-term retail strategy, and it’s paying off by driving membership and sales.

Moreover, the company has optimized its fulfillment network and last-mile delivery operations, cutting its cost per unit for the second year in a row. Moreover, its continued investments in automation and robotics are expected to further enhance operational efficiency.

Advertising: Amazon’s Emerging Profit Engine

Beyond retail and cloud, Amazon’s advertising business is emerging as a significant profit driver. In Q1, advertising revenues grew by 19% year-over-year, building on an already substantial base. The company’s full-funnel advertising platform is gaining traction, and brands are increasingly relying on Amazon to connect with customers across the entire purchase journey.

The Bottom Line

In short, with a diversified business model that includes e-commerce, cloud computing, advertising, and a growing AI footprint, Amazon is well-equipped to weather economic turbulence and continue its upward trajectory.

Wall Street rates AMZN stock as a “Strong Buy,” with an average price target of $244.40. This suggests upside potential of about 29% from its Friday, May 2 closing price of $189.98.