E-commerce giant Amazon released its second-quarter financial report after the market closed on Thursday. The revenue for the quarter was unexpectedly low, and due to its increased capital expenditures to meet AI service demands, the profit outlook for the next quarter fell below expectations, causing its after-hours stock price to plummet nearly 7%.
(Background:
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(Additional context:
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**Table of Contents**
– High costs of AI investments
– Continued increase in AI business investments
– Amazon’s stock price plummets
E-commerce giant Amazon reported its second-quarter earnings on Thursday, showing a 10% year-over-year revenue increase to $147.98 billion, lower than analysts’ expectations of $148.56 billion. The revenue for its cloud services division, AWS, grew 19% year-over-year to $26.3 billion, exceeding expectations. However, the strong performance in cloud computing was offset by the weakness in Amazon’s core e-commerce business, which saw only a 5% year-over-year revenue increase to $55.4 billion, a slowdown from the 7% growth in the first quarter. Advertising revenue was $12.77 billion, up 19.5% year-over-year, but also fell short of analysts’ expectations of $13 billion.
It is noteworthy that due to Amazon’s increased spending to meet AI service demands, the operating profit for the third quarter is expected to range between $11.5 billion and $15 billion, lower than the analysts’ average estimate of $15.7 billion. Third-quarter revenue is projected to be between $154 billion and $158.5 billion, with growth around 8% to 11%, again below the analysts’ average estimate of $158.4 billion.
According to a Bloomberg report, after focusing on cost-cutting over the past two years, Amazon CEO Andy Jassy is now working to inject substantial investments into AI services to capitalize on the rapid growth of generative AI. Amazon stated that this opportunity represents a “billion-dollar revenue business.”
However, the high costs with slow returns could temporarily depress profit margins. A company like Amazon needs to balance short-term financial pressures with long-term strategic goals. Andy Olsavsky noted that in the first half of this year, Amazon spent $35 billion on capital expenditures for its cloud services division, including data centers, and plans to increase this figure in the second half of the year. He pointed out that Amazon “has seen strong demand for both generative and non-generative AI workloads.”
DA Davidson analyst Gil Luria stated that Amazon consistently makes aggressive investments at the expense of short-term profits, and it appears the company plans to continue this trend for the remainder of the year. The good news is that most of the funding is flowing into the cloud services division, AWS, which saw a 19% sales growth in the second quarter, exceeding analyst expectations.
As a result of the disappointing earnings report, Amazon’s stock price fell 1.56% to $184.07 on Thursday and then dropped approximately 6.88% in after-hours trading to $171.40. However, based on the closing price, Amazon’s stock has still risen 22% year-to-date.
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