Amazon Earnings Jump on Cloud Computing
Amazon has reported a significant increase in earnings, driven primarily by its cloud computing division. Despite this growth, the company has faced criticism from Wall Street due to higher capital spending and shrinking margins.
Shares in the Seattle-based company, which have risen more than a third in the past 12 months, slipped as much as 8 percent in after-hours trading in New York. This reaction mirrored responses to recent results from Microsoft and Google-parent Alphabet, with investors showing caution regarding higher artificial intelligence-related spending and seeking evidence that the investments will yield healthy profits.
Net sales across Amazon rose 10 percent to $148 billion in the three months to June 30, slightly missing analysts’ estimates of $148.6 billion. However, net income increased to $13.5 billion, surpassing analysts’ forecasts of $11 billion.
Sales at Amazon Web Services (AWS), its closely monitored cloud division, rose 19 percent to $26.3 billion, exceeding analysts’ forecasts of $26 billion. This marked an acceleration from the 17 percent growth in cloud sales last quarter.
However, margins at AWS, a core driver of Amazon’s profits, narrowed 2 percentage points to 36 percent. The company reported a 50 percent increase in investments in property and equipment to $17.6 billion during the quarter compared with the same period last year. This spending included investments in its logistics network and the infrastructure supporting AI, such as data centers and chips.
Amazon indicated that high spending could impact profits, forecasting operating income for the third quarter to be between $11.5 billion and $15 billion, below analysts’ expectations of $15.1 billion.
Big Tech companies, including Amazon, Microsoft, and Google parent Alphabet, have come under intense scrutiny from investors. They are looking for signs that the massive investments in AI technology and infrastructure will pay off.
Amazon’s chief financial officer, Brian Olsavsky, stated on Thursday that capital spending is expected to be higher in the second half of the year, with most of it directed toward cloud infrastructure. He emphasized the importance of matching supply with demand, noting that the company’s focus is on “getting the supply.”
Earlier this week, Microsoft unveiled a surge in quarterly capital spending to support the build-out of AI infrastructure to meet growing demand, which it said was outstripping its capacity.
While Amazon has not provided specific details on the contribution of generative AI to its AWS sales, it was stated in May that the technology had grown into “a multibillion-dollar revenue run-rate business for us.” Olsavsky mentioned that customer demand for Amazon’s AI services is “amplifying” cloud sales.
