Amazon.com Inc, risking Wall Street’s displeasure, told investors that profits for now would take a back seat to heavy spending on artificial intelligence (AI).
Company shares fell after it projected operating income for the period ending in September would be US$11.5 billion to US$15 billion. Analysts, on average, were looking for US$15.7 billion.
After focusing on cost-cutting during the past two years, Amazon CEO Andy Jassy said he is spending in an effort to capitalize on the boom in generative AI.
Photo: Bloomberg
Amazon has said the opportunity represents a “multibillion-dollar revenue run rate business.”
The decision to spend in the short term to take advantage of long-term growth opportunities has been embedded in Amazon’s DNA since Jeff Bezos started the company 30 years ago.
“Amazon has always had spurts of investment at the expense of short-term margins, and it appears they are planning a spurt into the rest of the year,” DA Davidson analyst Gil Luria said.
“The good news” is much of the money is going toward the Amazon Web Services (AWS) cloud unit that produced 19 percent sales growth in the second quarter — more than analysts projected, Luria said.
During a briefing after the company announced second-quarter results on Thursday, Amazon chief financial officer Brian Olsavsky said the company spent US$30.5 billion on capital expenditures in the first half of the year. That includes money for data centers required to power AWS.
He pledged to spend even more in the second half.
Amazon shares declined about 7 percent in extended trading after closing at US$184.07 in New York. The stock had gained 21 percent this year.
Amazon also provided conservative revenue guidance for the third quarter.
Sales would grow between 8 percent and 11 percent to as much as US$158.5 billion, the company said. Analysts estimated US$158.4 billion on average.
About revenue outlook, Olsavsky said the company is “seeing cautious consumers looking for deals.”
Big news events, including the Olympics, appear to have interrupted normal purchasing patterns in the quarter, making it more difficult to forecast sales, he added.
The cloud business, which suffered record low sales growth last year, continued to stage a comeback during the second quarter. AWS revenue jumped 19 percent to US$26.3 billion, beating estimates and posting its second consecutive quarter-on-quarter growth.
Total revenue increased by 10 percent to US$148 billion in the period ended June 30, compared with analysts’ average estimate of US$148.8 billion. It also posted an operating profit of US$14.7 billion. Analysts, on average, projected about US$13.6 billion.
Amazon’s operating expenses increased by 5.2 percent to US$133.3 billion, less than Wall Street projections. The company’s workforce increased 5 percent to more than 1.53 million people.
The strong cloud computing performance was offset by weakness in Amazon’s main e-commerce business. Revenue from Amazon’s seller services and advertising fell short of estimates.
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