If that were the case, then of course the answer would be "no" AWS can't just cut off service, just like Verizon can't just drop calls if they think you're discussing political issues Verizon disagrees with over the phone.
I personally don't this AWS is a utility / common carrier (I can go and buy a server and serve a website all on my own for the entire internet to access). Therefore, I don't think the government should require AWS to provide services to clients that they believe are violating their TOS.
AWS has a very clear Acceptable Use policy: https://aws.amazon.com/aup/
This snippet can be found above the fold (not hidden in a long TOS) in their acceptable use policy:
> Illegal, Harmful or Fraudulent Activities. Any activities that are illegal, that violate the rights of others, or that may be harmful to others, our operations or reputation, including disseminating, promoting or facilitating child pornography, offering or disseminating fraudulent goods, services, schemes, or promotions, make-money-fast schemes, ponzi and pyramid schemes, phishing, or pharming.
If nothing else, by AWS hosting Parler they were risking their reputation, which alone is enough to terminate service by the standards set in their AUP.