's (NASDAQ:AMZN) all-important Amazon Web Services (AWS) segment has been the undisputed leader of cloud infrastructure, by far, for years. The most recent third-party estimate from Canalys pegs AWS global market share at nearly 34% in the fourth quarter, larger than the next three largest competitors -- Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and IBM -- combined (31%).

Competition is heating up, and rivals are starting to chip away at AWS' dominance.

Servers in a data center

Image source: Getty Images.

AWS is hugely important to the Amazon thesis

That's the underlying theme of a research note from Pacific Crest (via Tech Trader Daily). Analyst Brent Bracelin is reiterating an overweight rating but slightly reducing his price target from $905 to $895, while expressing some concern that Microsoft Azure and Google Cloud are starting to catch up and "becom[e] more viable." The software and search giants both continue to invest heavily in their cloud offerings, both in terms of technical capability as well as geographic expansion and reach.

Since AWS is immensely more profitable that Amazon's core e-commerce business, its results carry a disproportionate weight when it comes to the bottom line, and strong AWS performance has been a key driver of Amazon's rally over the past two years, which has seen shares more than double.

AMZN Chart

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Microsoft Azure is making inroads at large enterprise customers and government agencies, which are increasingly transitioning their needs away from their own data center infrastructures and toward public cloud platforms. Google Cloud has scored a high-profile win in Snap, which has committed to spending $2 billion with the search giant and is only using AWS as a backup. Google also recently announced a handful of other big wins for its cloud business.

Bracelin still believes that AWS has a "multiyear competitive lead," despite rivals starting to catch up in different ways. As a result, he is tempering his expectations for growth for the next two years. Overall, the analyst considers decelerating growth a "minor concern," but it's definitely something that should be on investors' radar.

Rising cloud use lifts all infrastructure vendors

It's worth pointing out that the cloud infrastructure market is growing so fast -- up 49% last year and expected to jump another 46% this year -- that there should be plenty to go around. The cloud infrastructure market could generate a total of $55.8 billion in total revenue this year. Of course, the dominant vendors will compete aggressively, but we're not talking about zero-sum competition.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.