This report analyzes the recent financial performance and strategic investments of Amazon and Alibaba, particularly focusing on their cloud computing divisions and broader business segments, to provide an objective comparison for sophisticated investors.

Assessing Growth Trajectories: Amazon and Alibaba in Cloud and Digital Sectors

U.S. and international equities markets have closely monitored the strategic pivots and financial performance of technology giants Amazon.com Inc. (AMZN) and Alibaba Group Holding Ltd. (BABA). While both companies are making significant strides in cloud computing and artificial intelligence, their recent results highlight divergent paths in profitability and investment strategies, influencing investor sentiment and market positioning.

The Event in Detail: Divergent Growth Narratives

Amazon Web Services (AWS), a cornerstone of Amazon's earnings power, expanded at a rate of nearly 18% year over year in the second quarter of 2025, achieving an annualized revenue run rate of just over $123 billion. This growth was bolstered by a triple-digit year-over-year percentage increase in generative AI sales, underscoring robust demand. Beyond cloud, Amazon's online store segment demonstrated an acceleration in growth, climbing 11% year over year in Q2, an improvement from 5% in the prior quarter. The company's high-margin advertising business also saw significant momentum, growing 19% year over year in Q2, up from 4% in Q1.

Conversely, Alibaba reported a 10% year-over-year increase in overall revenue for the first quarter of fiscal year 2026, reaching RMB 247.7 billion (or a 2% increase when including recently sold businesses). Despite this, the company experienced a 14% decrease in adjusted earnings before interest, taxes, and amortization (EBITDA) and reported a negative free cash flow outflow of RMB 18.8 billion. On a more positive note for its cloud segment, Alibaba's Cloud Intelligence Group revenue growth accelerated to 26% year over year, driven by public cloud services. The company also maintained an impressive eighth consecutive quarter of triple-digit year-over-year growth in AI-related product revenue, with AI-related revenue accounting for over 20% of its external customer revenue.

Analysis of Market Reaction: Investment vs. Profitability

Market reaction to these results reflects a nuanced understanding of each company's strategy. Amazon's stock experienced a post-earnings dip, falling over 8% in after-hours trading, despite beating overall EPS and revenue expectations. This reaction was primarily attributed to the company's conservative guidance for third-quarter operating income, signaling continued heavy investments. Despite this short-term volatility, Wall Street analysts maintain an overwhelmingly bullish stance on Amazon, with a "Strong Buy" consensus from a significant majority of ratings. Analysts emphasize the enduring strength of AWS, the burgeoning advertising segment, and strategic commitments to AI development as key drivers for long-term growth.

Alibaba's stock, by contrast, saw a notable surge, jumping nearly 8% in August 2025, outperforming many Chinese tech peers. This gain was fueled by stronger-than-expected cloud earnings and renewed investor confidence. However, the sustained heavy investment in AI and cloud infrastructure has led to a decline in adjusted EBITDA and a negative free cash flow, indicating that while Alibaba is aggressively pursuing growth, it comes at a significant cost to short-term profitability. This dynamic positions Amazon with what is perceived as a "cleaner, multi-engine earnings power" due to its more mature and diversified revenue streams.

Broader Context and Implications: The AI Race and Valuation

Both Amazon and Alibaba are deeply entrenched in the global technological race, particularly in cloud computing and artificial intelligence. While AWS remains the undisputed market leader with an estimated 30% global market share, its 17.5% year-over-year growth in Q2 2025 was slower compared to rivals like Microsoft Azure (39%) and Google Cloud (32%). Nevertheless, Amazon's commitment to future growth is evident through its planned capital expenditures, projected to exceed $100 billion in 2025, with the majority allocated to building out AI capacity within AWS.

Alibaba is also making substantial long-term commitments, planning to invest RMB 380 billion (approximately $52 billion) over the next three years to build its AI and cloud infrastructure. This investment positions Alibaba as a crucial enabler of enterprise AI adoption across industries. The company's diversification into international e-commerce and logistics further insulates it from some of the domestic macroeconomic pressures in China.

From a valuation perspective, Amazon shares are generally more expensive on traditional multiples but are often considered a "better business" by analysts due to its broader revenue diversification and established profitability in multiple segments. Alibaba, while trading at a lower valuation, faces scrutiny regarding its overall revenue growth rate (especially when excluding divested units) and the impact of its heavy investments on free cash flow, alongside broader macroeconomic uncertainties in China. However, its significant share buybacks and dividends offer some appeal to investors seeking value.

Expert Commentary

Commenting on the robust demand for generative AI, Amazon CEO Andy Jassy stated:

"More demand than we have supplied for at the moment."

He further underscored the vast market opportunity, noting:

"85% to 90% of worldwide IT spend is still on-premise verses in the cloud. In the next 10 to 15 years, that equation is going to flip, further accelerated by the company's excitement for leveraging AI."

Amazon CFO Brian Olsavsky elaborated on the investment-profitability trade-off:

"We expect AWS operating margins to fluctuate over time, driven in part by the level of investments we are making at any point in time. We will continue to invest more capital in chips, datacentres and power to pursue this unusually large opportunity that we have in generative AI."

Looking Ahead

The trajectory of both Amazon and Alibaba will largely depend on their ability to translate significant investments in AI and cloud infrastructure into sustainable, profitable growth. Investors will closely monitor the operational efficiency gains and return on investment from these capital expenditures. For Amazon, the focus will remain on the continued expansion of AWS's market share and the sustained acceleration of its e-commerce and advertising segments. For Alibaba, the critical factors to watch will be its path to positive free cash flow, the profitability of its aggressive AI investments, and its ability to navigate the evolving regulatory and economic landscape in China. The competitive dynamics within the global cloud sector will also be a key determinant of both companies' long-term market positions. Both companies represent compelling, albeit distinct, growth opportunities for sophisticated investors in the digital economy.