AWS accelerates to 24% growth as Microsoft Azure stumbles

Amazon’s Cloud division hits fastest pace in three years; Microsoft shares slump as "capacity constraints" mute Azure’s AI gains.

The multi-year "Cloud Wars" took a sharp turn last week, as Amazon Web Services (AWS) reported a massive revenue surge that defied broader market fears of a sector-wide slowdown. The cloud giant posted a 24% year-over-year increase in revenue, reaching $35.6 billion for the quarter. On the other hand, Microsoft Azure disappointed investors with growth that failed to meet high expectations.

The contrasting reports have reshaped the narrative on Wall Street: while Microsoft struggles to build data centres fast enough to meet demand, Amazon’s aggressive infrastructure investments appear to be paying off in real-time.

AWS: The "scale advantage" reasserted

Amazon CEO Andy Jassy didn't mince words during the earnings call, noting that AWS is growing at 24% on a massive $142 billion annualised run rate, a scale he claims competitors with higher percentage growth cannot match.

Amazon’s in-house AI chips, Trainium and Inferentia, have officially surpassed a $10 billion annualised run rate, growing in the triple digits as customers look for cheaper alternatives to Nvidia hardware.

To keep up with high energy demands, AWS announced it has added over one gigawatt of power capacity to its data centres in just the last three months.

Microsoft: The "capacity wall"

Just a week earlier, on January 28, Microsoft’s stock suffered its worst slide in years despite beating top-line estimates. The culprit was a "disappointing" 39% growth rate for Azure. While 39% sounds high, it represented a deceleration that many believe signals Microsoft is hitting a physical limit.

Microsoft CFO Amy Hood admitted that demand for AI services currently exceeds available capacity. Essentially, Microsoft has the customers, but not enough "racks and stacks" to host them.

Additionally, Microsoft’s quarterly capital expenditure hit a record $37 billion (up 65%), leading investors to worry that the bank-breaking cost of building AI infrastructure is eating into profit margins without delivering immediate revenue acceleration.

It also didn’t help that nearly half of Microsoft's $625 billion cloud backlog is tied to AI model-makers like OpenAI, raising questions about how much of Azure's "growth" is just Microsoft's own partners spending the money Microsoft gave them.

The "SaaS apocalypse" vs The "infra-boom"

Analysts are now distinguishing between "Application AI" (Microsoft Copilots) and "Infrastructure AI" (AWS Bedrock/S3).

While Microsoft is trying to sell expensive $30/month AI subscriptions to office workers, Amazon is focused on selling the raw "shovels" (compute and storage) to the companies building their own AI. In early 2026, the market is favoring the "shovels."

"Microsoft is suffering from its own success," noted one Stifel analyst. "They sold the dream of AI so well that they can't build the data centres fast enough to house it. Amazon, meanwhile, spent 2025 building while everyone else was talking."