Financial giant Amazon is causing concern among investors on Wall Street - Financial giants are experiencing unease due to Amazon's expansion
Amazon, the tech giant known for its vast array of products and services, has seen its stock take a hit following a quarterly earnings report that fell short of revenue expectations and offered weaker-than-expected profit guidance.
In the second quarter, Amazon reported a 13% increase in net sales to $167.7 billion and EPS of $1.68, beating last year's $1.26. However, the revenue fell short of Wall Street estimates, disappointing investors. The company projected Q3 sales between $174 billion and $179.5 billion, below analysts' expectations near $204.8 billion, and operating income guidance ($15.5 billion to $20.5 billion) was slightly below the average estimate of $19.4 billion.
Amazon Web Services (AWS), a key growth driver, grew 17% in sales to $30.9 billion—just barely exceeding estimates—and its growth lagged behind cloud rivals Microsoft and Google, who have more strongly benefited from the AI boom. Amazon's CEO Andy Jassy is investing heavily in AI infrastructure to compete, with record capital expenditures of $31.4 billion in the quarter (up about 90% year-over-year). This high spending caused investor concern about near-term profitability and returns.
Despite the challenges, Amazon aims to attract more customers by offering lower costs for operating AI software. The pace of Amazon's capital expenditures is expected to continue in the second half of the year, according to CFO Brian Olsavsky. Amazon's rivals, including Microsoft, are also investing heavily in expanding their data centers for AI applications.
Interestingly, Amazon hasn't noticed any decrease in demand in the first half of the year despite the import tariffs imposed by former U.S. President Donald Trump. However, open questions remain about who will bear the higher costs due to these tariffs.
In summary, investors punished Amazon’s stock because revenue growth missed expectations and the profit outlook was cautious amid record spending on AI infrastructure. This has caused fears that the company’s investments in the AI arms race with Microsoft and Google may weigh on profitability in the short term despite AWS’s ongoing growth. Amazon's CEO, Andy Jassy, stated that the industry is still in the early stages of artificial intelligence, indicating a long-term focus on this critical technology.
In response to the growth in artificial intelligence (AI), Amazon is intent on offering financial aid to businesses by lowering the costs of operating AI software, aiming to attract a larger customer base. However, the company's heavy investments in AI infrastructure, as indicated by the record capital expenditures of $31.4 billion in the second quarter, have raised concerns about near-term profitability among investors.
