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Amazon Web Services Continues to Churn High Growth

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Amazon announces healthy operating profits growth for its AWS segment

Earlier in the series, we discussed Amazon’s (AMZN) main business segment, Electronics and Other General Merchandise (or EGM). However, another business segment that is growing rapidly for the company is the Amazon Web Services (or AWS) segment. AWS revenues increased by 81% year-over-year (or YoY) to $1.82 billion in 2Q15. However, the segment’s operating profits grew by an even higher rate of 407% YoY to $391 million.

As the chart above shows, AWS operating margins have grown from 7.7% in 2Q14 to 21.4% in 2Q15.

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Amazon continues to lead the cloud infrastructure market

According to a report from the Synergy Research Group, Amazon continues to lead the cloud infrastructure market. However, Microsoft (MSFT) has shown faster revenue growth for its cloud business, and it is ranked second in this market with a share of 10% as of 3Q14. IBM (IBM), Google (GOOG), Salesforce.com (CRM), and Rackspace (RAX) are some of the smaller players in this market, according to the report.

Investors have been pleasantly surprised by the results of the AWS business segment since Amazon started reporting its results in 1Q15. Investors were probably expecting an operating loss from this segment, as the highly competitive cloud computing business requires heavy investments. But Amazon announced a healthy 17% operating margin for its AWS segment in 1Q15.

For diversified exposure to Amazon, you could invest in the PowerShares QQQ Trust, Series 1 ETF (QQQ), which invests about 4.9% of its holdings in Amazon.

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