AWS is Amazon’s (AMZN) most profitable business unit (26% operating margin in the September quarter), and is subsidizing other Amazon business units. While AWS allocates capital to other AMZN business units, competing cloud platforms Azure and Google Cloud are capital allocation recipients.
While AWS touts its new, high-end Graviton chips – these chips will compete with chips from Nvidia (NVDA) and Intel (INTC), within AWS – Azure and Google Cloud also have in-house designed chips powering each company’s respective cloud platform. The difference is parent company Microsoft (MSFT) subsidizes Azure with fat profits from other business units and Alphabet/Google (GOOG) does the same for Google Cloud.
Thus, while AWS is responsible for making capital allocation handouts internally at Amazon, Azure and Google Cloud are net “recipients” of capital allocation decisions inside of Microsoft and Alphabet respectively.
Further, Google Cloud and Azure are ahead of AWS in the broadly-defined AI/ML game – a staple of advanced cloud services. While AWS may be the marketshare leader, it is a technology laggard as compared to Google Cloud and Azure. We view Google as the AI/ML leader – the primary reason why we believe Google Cloud will gain marketshare over time vs. Azure and AWS.