Amazon Shares Slide as Spending Surges and Revenue Outlook Disappoints
Tech giant has been investing in AI and cloud computing infrastructure
By
Sebastian Herrera
Updated Aug. 1, 2024 5:38 pm ET
on reported a 10% rise in total sales for the second quarter. PHOTO: MARISSA LESHNOV FOR THE WALL STREET JOURNAL
Amazon.com AMZN -1.56%decrease; red down pointing triangle shares slipped Thursday after it projected weaker-than-expected revenue growth and said it would continue to ratchet up spending to meet anticipated demand for artificial-intelligence services.
The company’s total sales rose 10% from a year earlier to $148 billion during the three-month period ending in June. Its profit was $13.5 billion. Its sales were in line with analyst expectations, while its profit was higher than predicted.
Revenue from Amazon’s cloud computing unit, Amazon Web Services, grew by about 19% to a higher-than-expected $26.28 billion. The business has shown renewed strength after experiencing a slowdown in 2023.
Shares of Amazon—which had risen more than 20% so far this year—fell 5% in after-hours trading Thursday.
Like many of the top companies in technology, Amazon has been ramping up its spending on the data centers, real estate and chips needed to meet the surging demand for computer power that has come with the rise of artificial intelligence. Amazon’s purchases of property and equipment, a measurement of its capital spending, was $17.62 billion in the second quarter. That is more than 50% higher than the year-earlier level and the highest quarterly spending since 2021.
Chief Financial Officer Brian Olsavsky said the company’s strong capital spending will continue in the near term.
“There’s a lot of money at stake here,” Olsavsky said in a call with reporters. “It’s a high-stakes business. It’s a revolutionary shift in a lot of industries. We think we can participate in that in a very high-class way based on our existing position in cloud computing.”
Amazon has sought to ignite faster growth in the cloud business, which is the leading cloud provider and the company’s profit center. The unit slowed down last year as corporate customers looked to curtail their spending, and Amazon faced renewed competition from Microsoft, which has been attracting customers through its budding AI business.
Amazon has been promoting its own AI capabilities, adding new services for AWS customers. The company has said AI offerings such as its Bedrock applications builder have been well received by customers.
Amazon Chief Executive Andy Jassy wants to make the company a leader in artificial intelligence. It has created special teams to tackle AI innovation and large language models, and Amazon has released a flurry of services, including an AI shopping assistant on its app named Rufus.
The company said it expects its sales to be between $154.0 billion and $158.5 billion during the current quarter, a range falling on the low end of Wall Street estimates. The company projected it would record an operating income between $11.5 billion and $15 billion this quarter.
Olsavsky said predictions for the current quarter are more difficult due to events like the Olympics and the coming U.S. presidential election, which can distract customer attention. Recently, customers have been more likely to look for deals and lower-price essential items, and Amazon is looking to match those expectations. That can also affect revenue, he said.
Amazon has benefited from an overall healthy e-commerce market as consumers have continued to spend strongly while looking for deals. The company said in July that its annual Prime Day saw record-breaking sales, though it didn’t share details. Adobe Analytics, which analyzes Prime Day impact, said online spending in the U.S. rose 11% to $14.2 billion during the two-day event.
Amazon’s advertising business, which has grown quickly for the company, rose by 20% in the second quarter to $12.77 billion, lower than what analysts had expected.
Amazon has been in cost-cutting mode since 2022. Jassy has taken a hardline approach to unprofitable businesses, including its Alexa assistant division, and cut its workforce while increasing investment in AI and the data centers that power the technology. In May, the company named Matt Garman, a veteran executive with a strong engineering background, as the new AWS CEO, as it moved to better capitalize on AI.
Microsoft and Google have poured money into AI since the late 2022 release of ChatGPT kicked off an arms race between the big tech companies to build increasingly powerful cloud-computing infrastructure. Google parent Alphabet in July reported 29% growth in its cloud business, while Microsoft’s Azure cloud business —a central part of its AI operation— rose 29%, slower than what analysts had expected.
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While Amazon’s retail business has continued to dominate American online spending, the company has had to contend with new competitors. Temu and Shein, both companies with Chinese roots, have captured the spending of many U.S. consumers looking for bargain deals online.
In response, Amazon is planning a Temu-like service focused on shipping cheap fashion, household goods and other products directly to customers from warehouses in China. The company has tried to find ways to make its bargain items more visible to customers. It is also pushing its fast delivery further into rural America.
Amazon has been expanding its reach in sports and entertainment. It recently completed a major media-rights deal with the National Basketball Association to stream games starting the 2025-26 season on Prime Video, where the company also streams some National Football League games and this year began to show ads on the service.
In addition to sports, Amazon has continued its quest for major streaming titles. It recently released a trailer for the second season for its Lord of The Rings series, in which it has invested hundreds of millions of dollars.
Write to Sebastian Herrera at sebastian.herrera@wsj.com
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