Bengaluru - Amazon.com on July 31 forecast third-quarter sales above market estimates, but failed to live up to lofty expectations for its Amazon Web Services (AWS) cloud computing unit after rivals handily beat Wall Street forecasts.

Shares plunged by more than 7 per cent after-hours.

Both Google-parent Alphabet and Microsoft posted big cloud computing revenue gains this month.

AWS profit margins also contracted. Amazon said they were 32.9 per cent in the second quarter, down from 39.5 per cent in this year’s first quarter and 35.5 per cent a year ago. The second-quarter margin results were at their lowest level since the final quarter of 2023.

AWS represents a small part of Amazon’s total revenue, but it is a key driver of profits, typically accounting for about 60 per cent of Amazon’s overall operating income.

AWS reported a 17.5 per cent increase in revenue to US$30.9 billion (S$40.1 billion), edging past expectations of US$30.77 billion. By comparison, sales for Microsoft’s Azure rose 39 per cent and Google Cloud gained 32 per cent.

Amazon expects total net sales to be between US$174 billion and US$179.5 billion in the third quarter, compared with analysts’ average estimate of US$173.08 billion, according to data compiled by LSEG. The range for operating income in the current quarter was also light. Amazon forecast between US$15.5 billion and US$20.5 billion, compared with expectations of US$19.45 billion.

Both Microsoft and Alphabet cited massive demand for their cloud computing services to boost their already huge capital spending, but also noted they still faced capacity constraints that limited their ability to meet demand.

While Amazon has poured billions of dollars into AI infrastructure, analysts have said the lack of a strong AI model from AWS is causing concerns that the company could be trailing rivals in AI development.

The largest tech companies have been boosting capital expenditures to add more data centre capacity, particularly fo...