Alphabet Just Scored a Huge Win. Is This Bad News for Amazon?

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is best known for something a lot of us use every day: Google Search. The world's No. 1 search engine drives the company's profit -- advertisers flock to advertise across Google, knowing they can reach us, their target audience, there. However, Alphabet has another business that's growing fast, and it recently reached a big milestone.

I'm talking about Google Cloud. This business surpassed $10 billion in revenue for the first time in the most recent quarter, the second quarter -- and generated more than $1 billion in operating profit. What does this have to do with Amazon (NASDAQ: AMZN) ? Amazon Web Services (AWS) is the world's biggest cloud company and has held this position for some time. And though Amazon is best known for its e-commerce operations, AWS is the company's main source of profit.

So, are these gains by rival Google Cloud bad news for Amazon? Let's find out.

Image source: Getty Images.

AWS' cloud market share

First, let's take a look at the market position of each of these companies. AWS has held more than 30% of the cloud market over the past six years, according to Synergy Research Group. Microsoft and Google both have been growing their share over that time period -- to about 24% and 12%, respectively.

Today, all three players have jumped into the area of artificial intelligence (AI), offering tools and services to customers -- and this could be a growth driver for each of these companies. Alphabet said in its earnings call that, year to date, AI Infrastructure and Generative AI Solutions have brought in billions of dollars in revenue.

The question now is whether this is bad news for Amazon, threatening to take market share away from the market giant. It's important to note that Amazon has been particularly focused on its AI initiatives, setting out a plan to address each area of AI demand. AWS sells basics like chips as well as a fully managed service that offers customers access to popular large language models to customize. AWS also offers apps, such as software development assistant Amazon Q.

Getting back to the chip selection, not only does Amazon offer a full range of products from top providers like Nvidia , but it also has developed its own chips for cost-conscious customers. So, whether you are a customer with a huge budget and a complex AI project or a smaller player that's just getting started, you can find what you need on AWS.

This investment is starting to bear fruit. In the first quarter, Amazon said AWS reached a $100 billion annual revenue run rate thanks to its AI business. The company said that"tens of thousands" of customers worldwide now are using AWS' fully managed service, Amazon Bedrock. AWS continues to innovate across its AI services, expand its local zones to bring AWS infrastructure closer to customers and establish important collaborations. For example, AWS and Nvidia are developing an AI supercomputer, which will be built on Nvidia's new Blackwell platform.

"World-changing AI" on AWS

"We're optimistic that much of this world-changing AI will be built on top of AWS," chief executive officer Andy Jassy wrote in his shareholder letter earlier this year. His confidence is due to the company's presence across every "layer" of AI needs and AWS' solid track record of security for its customers' data.

Of course, Google Cloud and others should continue to grow and could become successful in the AI market. Google Cloud may even deliver bigger gains in revenue and operating profit than AWS as it ramps up its AI offerings -- this happened in the first quarter of this year, for example. (Amazon is set to report second-quarter earnings on Aug. 1.)

But I don't think this will upset AWS' position. AWS has established a very complete AI platform, and these products and services are already generating significant growth -- and we're still in the early days of the AI growth story.

So, Alphabet's great news isn't bad news for rival AWS, and that means there's plenty of reason to be optimistic about Amazon and its AI growth over the long term.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .