All three of the three cloud services giants provided quarterly updates last week. One key trend was apparent: Alphabet's (GOOG 0.91%) (GOOGL 1.03%) Google Cloud and Microsoft's (MSFT 0.61%) Azure are gaining ground on Amazon (AMZN 0.42%) Web Services (AWS).

Alphabet reported that Google Cloud revenue soared 28% year-over-year in the quarter ending March 31, 2023. Microsoft said that its Azure and other cloud services revenue jumped 27%. But AWS net sales grew by less than 16%.

With its primary rivals capturing a greater share of the cloud market, you might think that Amazon would be concerned. There was no indication that was the case in the company's first-quarter conference call, though. Here are three key reasons why Amazon doesn't appear to be worried about Google's and Microsoft's gains. 

1. The sheer size of the market opportunity

What's the biggest reason why Amazon executives don't feel very threatened by Google Cloud and Microsoft Azure? It's probably that they know just how great the cloud market opportunity is over the long term.

As he has mentioned in the past, Amazon CEO Andy Jassy noted in the Q1 call that "90-plus percent of global IT spend is still on-premises." He believes that this will flip in the not-too-distant future with most IT spending in the cloud.

Jassy also predicts that AI will provide a huge catalyst for cloud adoption. He stated, "In my opinion, few folks appreciate how much new cloud business will happen over the next several years from the pending deluge of machine learning that's coming." He expects that "many customer experiences are going to be reinvented and invented that haven't existed before." And it's all going to be in the cloud, in Jassy's opinion.

The old adage that "a rising tide lifts all boats" appears to be applicable in this case. Amazon, Google, and Microsoft should all be winners from the tremendous growth on the way in the cloud market.

2. AWS has several competitive advantages

AWS remains the leader based on market shares. Amazon also firmly believes that AWS still claims several competitive advantages that could help it retain the top spot. 

Jassy argued that AWS has "the cloud infrastructure offering with the broadest functionality by a fair bit." He claimed that his company's cloud unit also offers "the best security and operational performance and the largest partner ecosystem." All of this, Jassy's view, gives AWS a leg up in the cloud market.

But what about the concerns with AWS customers tightening their spending? Jassy said that customers are telling the company they're seeking to optimize costs rather than cut costs. He added that after an extensive analysis he and Amazon's management team "like the fundamentals of what we're seeing in AWS." 

For what it's worth, both of Amazon's big rivals appear to be facing similar issues. Alphabet and Google CFO Ruth Porat noted, "In Q1, we continued to see slower growth of consumption as customers optimized GCP [Google Cloud Platform] costs, reflecting the macro backdrop, which remains uncertain." Microsoft CFO Amy Hood said in the tech giant's quarterly call that Azure customers "continued to exercise some caution as optimization and new workload trends from the prior quarter continued as expected."

3. Shifting into higher gear on AI

Microsoft's heavy focus on AI in its latest quarterly update grabbed investors' attention in a big way. But don't think that Amazon is taking the AI opportunity for AWS lightly. Jassy said that AWS has "the broadest machine learning functionality and customer base by a fair bit." He also provided specific examples of how AWS is shifting into higher gear on AI.

Jassy mentioned that AWS recently released new versions of its Trainium and Inferentia chips. Trainium supports accelerated training of deep learning AI systems, while Inferentia delivers high performance in deploying complex AI models. Jassy claimed that "the combination of price and performance that you can get from those chips is pretty differentiated and very significant."

He also stated that earlier this month AWS announced Bedrock, a managed service that allows customers to build and scale generative AI apps. These apps can use foundational models from Amazon, AI21 Labs, Anthropic, or Stablity AI.

Jassy touted the recent launch of CodeWhisperer as well. This new product helps create software code using generative AI. 

Nothing to worry about?

Amazon doesn't seem to be worried about the threats from Google and Microsoft, but some investors appear to be. Amazon's shares fell last week, while Microsoft stock soared and Alphabet stock edged a little higher.

Is there truly nothing to worry about? I don't think there is any real reason for concern. 

Sure, Google and Microsoft are catching up somewhat thanks in large part to their AI initiatives. However, the bottom line is that Amazon, in Jassy's words, "isn't close to being done inventing in AWS." My view has been and continues to be that Amazon, Alphabet, and Microsoft will be tremendously successful AI stocks over the long run.