Here's Why Amazon's AWS Disclosure Hurts Cisco

In a report published Friday, JP Morgan analyst Rod Hall commented that Amazon.com, Inc. AMZN's disclosure of its AWS (Amazon Web Services) revenue and profitability for the first time in its first quarter print represents a risk to Cisco Systems, Inc. CSCO.

Amazon stated in its quarterly results that AWS revenue rose 49 percent year-over-year to $1.566 billion while its EBIT margin dipped 6.4 percent year-over-year to 16.9 percent while contributing $265 million of non-GAAP profit.

Hall noted that AWS as an infrastructure company has "significantly" lower EBIT margins when compared to other infrastructure selling companies such as Cisco (28 percent EBIT margin), EMC Corporation EMC (22 percent EBIT margin ex. VMWare), while ranking slightly above Hewlett-Packard Company HPQ (15 percent EBIT margin).

"In our opinion this represents risks to Cisco's pricing model though we acknowledge that many believe Amazon is over-investing profits from AWS and actually has better underlying margins than are being reported," Hall wrote.

The analyst stated that Amazon's reporting of AWS metrics represents a "negative impact" to Cisco.

The analyst's sentiments echoes similar commentary by Michael Pachter of Wedbush, who argued that the AWS segment should now be considered a "significant" part of the company's overall business.

Shares of Amazon jumped to new 52-week highs of $452.65 by Friday afternoon. Meanwhile, shares of Cisco were trading slightly higher by 0.35 percent.