Amazon’s Strong Quarterly Performance Driven by AWS, Stock Drops 8.50% on Disappointing Guidance

Amazon’s Strong Quarter Driven by AWS

Amazon recently released its second-quarter results, showcasing a significant increase in revenues and profits, largely driven by the performance of Amazon Web Services (AWS).
Despite these positive results, the company’s future guidance disappointed the market, leading to an 8.50% drop in its stock price in after-hours trading.

Financial Results Highlights:

Revenue: +10% year-over-year at $148 billion
Net Income: +102% year-over-year at $13.5 billion
AWS Revenue: +19% year-over-year at $26.3 billion
AWS Profit Margins: 36%
Capital Expenditure: +50% year-over-year at $17.6 billion

In the second quarter, Amazon’s sales advertising revenues increased by 20% to $12.8 billion, while profit margins ranged from 4% earlier in the year to 11% in the first quarter, dropping to 10% in the second quarter.

AWS and Artificial Intelligence

AWS played a crucial role in boosting Amazon’s revenues and profits in the second quarter.
With a 19% revenue increase compared to the previous year, reaching $26.3 billion, AWS exceeded analysts’ expectations.
This achievement was made possible through the introduction of new tools and services, such as Amazon Bedrock, providing companies access to AI models for developing custom applications.

Amazon’s CEO, Andy Jassy, highlighted the significant progress the company is making in accelerating AWS growth, fueled by the enthusiasm around generative artificial intelligence.
This technology not only improved cloud service offerings but also increased demand among corporate customers, further boosting sales.

Despite the revenue growth, AWS profit margins decreased by 2 percentage points, settling at 36%, mainly due to a 50% increase in property and equipment investments, reaching $17.6 billion in the quarter.
These investments were crucial to support the infrastructure needed for AI and enhance the logistics network, essential elements for competitiveness and meeting the rising demand for cloud services.

Disappointing Guidance

Despite strong financial results in the second quarter, Amazon’s future forecasts raised concerns among investors.
The company predicted an operating income for the third quarter between $11.5 and $15 billion, below analysts’ expectations of $15.1 billion.
This downward revision sparked worries about Amazon’s ability to maintain sustainable long-term growth.

Amazon’s shares, which had surged by over a third in the last 12 months, fell by 8.50% in after-hours trading in New York.
This decline reflects investors’ reactions to increased capital expenditures and declining margins, despite AWS sales acceleration.
Investors closely monitor the growing AI-related expenses, seeking signs that the billions invested in this technology will translate into solid profits.

Amazon’s CFO, Brian Olsavsky, stated that capital expenditures would continue to rise in the second half of the year, with a particular focus on cloud infrastructure.
This commitment is essential to ensure that the offering can meet growing demand, but it also carries significant profitability risks.

Consumer caution and the search for more economical products pose additional challenges for Amazon.
While the volume of purchased goods remains strong, margin pressure remains a concern.
To mitigate these risks, Amazon has implemented strategies to reduce costs and improve operational efficiency, such as reorganizing North American logistics and expanding advertising activities.

For further information, read about how Apple faces challenges in China and the potential impact of AI on its operations.