Meta Platforms May Be Launching a Cloud Business: Should Amazon Be Worried?
Meta Platforms is reportedly exploring a cloud business to monetize excess AI computing capacity, potentially competing with Amazon Web Services (AWS). However, analysts suggest Amazon need not worry due to the rapidly growing AI infrastructure market allowing multiple winners, AWS's comprehensive service stack beyond just compute power, and high switching costs that create a wide competitive moat. Amazon continues to thrive despite competition from Microsoft and Alphabet, supported by strong cloud revenue growth and other profitable ventures like advertising and logistics.
Amazon's (AMZN +0.80%) cloud computing segment, Amazon Web Services (AWS), is arguably its most important unit right now. It is growing its sales faster than the rest of the business, is responsible for most of its operating profits, and given the large remaining opportunity in this niche, AWS could be a key growth driver for a long time. However, what will happen to Amazon as more corporations enter the cloud industry and seek to compete with AWS? Meta Platforms (META 1.79%), Facebook's parent company, is reportedly exploring doing just that. Let's discuss the potential implications for Amazon.
Image source: The Motley Fool.
It's not a one-winner-takes-all market
According to some reports, Meta Platforms' CEO, Mark Zuckerberg, is looking to launch a cloud business and sell excess artificial intelligence (AI) computing capacity. The tech leader has been investing heavily in its AI-related ambitions, and it could get a return on that investment by renting out unused GPU (Graphics Processing Unit) capacity to other corporations. This would put Meta Platforms in direct competition with several cloud leaders, including Amazon. However, the e-commerce specialist and its shareholders shouldn't be too worried. Here are three reasons why.
First, AI infrastructure spending has been growing rapidly. According to some estimates, it reached $318 billion in 2025, up almost 108% from 2024. Some analysts think it could exceed $1 trillion by 2029. This will be a major tailwind for Amazon, but there is space here for multiple winners, potentially including Meta Platforms. Second, Amazon sells much more than AI computing capacity, although that has become an important part of its cloud business. Still, AWS offers a full stack of cloud services beyond AI. Customers can build and operate entire technology infrastructures on AWS rather than simply rent computing power.
NASDAQ: AMZN
Key Data Points
Third, Amazon's AWS benefits from a wide moat thanks to switching costs. So, it should remain a leader in this niche. The company has survived -- and even thrived -- despite increased competition from Microsoft (MSFT +1.68%) and Alphabet (GOOG 1.23%) (GOOGL 1.23%). In fact, Amazon's cloud revenue has accelerated over the past two quarters. This highlights Amazon's ability to fend off the competition and continue riding the cloud computing tailwind. Besides, there are many reasons beyond its booming cloud business to invest in the stock. Amazon is implementing initiatives that could help decrease costs within its e-commerce business, which still generates the bulk of its sales.
Elsewhere, the company continues to ramp up its high-margin advertising unit that should help boost profits and margins over the long run. Amazon also has other growth avenues, including its healthcare-related efforts and a new business line in which it will open its logistics network to other corporations. For all those reasons (and many more), Amazon remains an attractive long-term bet, even as it may face more competition in the cloud computing industry.
