AUS
NZ
UK
CA
USA
IND
Amazon.com Inc (NASDAQ:AMZN). forecasted a profit that fell short of analysts' estimates, leading to a decline in its share price during after-hours trading. The company's substantial spending on artificial intelligence (AI) services has increased, impacting its financial outlook.
Chief Financial Officer Brian Olsavsky reported that Amazon allocated $35 billion towards capital expenditures, including investments in data centers for its Amazon Web Services (AWS) cloud division, during the first half of the year. This expenditure is set to rise in the latter half of the year as demand for AI services continues to grow. Olsavsky highlighted strong demand for both generative and nongenerative AI workloads in a briefing with reporters.
Chief Executive Officer Andy Jassy has been focused on cost-cutting and improving profitability in Amazon’s core online retail sector while directing substantial resources towards AI services, which the company describes as a "multibillion-dollar revenue run rate business."
The recent trend of tech companies struggling to turn substantial AI investments into profits is evident. Microsoft Corp. reported slowing growth in its Azure cloud-computing segment and anticipated continued heavy spending on data centers. Meta Platforms Inc. recently posted positive earnings, which are expected to provide some leeway for its AI investments. In contrast, Alphabet Inc. saw a decline in its shares following an unexpected increase in costs that overshadowed its quarterly sales performance.
Olsavsky also noted that revenue forecasts are complicated by cautious consumer behavior and disruptions from major events such as the Olympics, which have affected normal purchasing patterns.
Despite these challenges, AWS reported a 19% increase in second-quarter revenue, reaching $26.3 billion, surpassing estimates and marking a second consecutive period of growth. However, this strong performance was tempered by weaker results in Amazon’s core e-commerce business, where revenue from seller services and advertising fell short of projections.
Analyst Gil Luria from DA Davidson noted that while investors were adjusting to more consistent profitability in retail, Amazon’s historical pattern of investing heavily at the expense of short-term margins is continuing. The growth in AWS revenue suggests a potential payoff from these investments.
Amazon’s total revenue for the quarter ending June 30 increased by 10% to $148 billion, slightly below the average estimate of $148.8 billion. The company reported an operating profit of $14.7 billion, exceeding the projected $13.6 billion.
Analyst Sky Canaves from Emarketer pointed to softer consumer spending in Amazon’s online business during the quarter. Canaves suggested that strategic positioning and promotional efforts will be crucial for Amazon to capitalize on shopping trends, especially with plans to introduce new discount sections ahead of the holiday season.
Operating expenses rose by 5.2% to $133.3 billion, aligning with Wall Street forecasts, and the workforce grew by 5% to over 1.53 million employees. Following the earnings announcement, Amazon’s shares declined approximately 5% in extended trading after closing at $184.07. Despite this, the stock had seen a 21% increase earlier in the year.
