Amazon Projects Profit That Underwhelms on AI Race Expense
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Amazon.com Inc. projected operating income in the current quarter that fell short of analysts’ estimates, worrying investors that the tech giant is spending too much to keep up with competitors in the race for artificial intelligence.
Operating profit will be $15.5 billion to $20.5 billion in the period ending in September, compared with an average estimate of $19.4 billion. Sales will be $174 billion to $179.5 billion, the company said July 31 in a statement. Analysts, on average, expected $173.2 billion.
CEO Andy Jassy is engaged in an AI infrastructure arms race with Microsoft Corp. and Alphabet Inc. that requires heavy spending on data centers. Both of those rivals reported strong earnings earlier this week showing they are benefiting from the AI boom.
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In the second quarter, Amazon’s revenue jumped 13% to $167.7 billion, handily beating estimates. But Amazon Web Services, the largest seller of rented computing power, gained just more than 17% to $30.9 billion, just ahead of analysts’ average estimate of $30.8 billion.
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The AWS sales increase was “very disappointing” given the higher growth rates reported earlier from Microsoft and Google, said Gil Luria, an analyst at DA Davidson. Microsoft’s Azure posted a 39% rise in sales during Q2. Google Cloud revenue rose by 32%.
Amazon shares declined about 3% in extended trading after closing July 31 at $234.11 in New York. The stock has gained 6.7% this year.
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“There’s a note of caution in the wide range in its operating income guidance for Q3, indicating that, as was the case in Q2, there’s still potential for curve balls from ongoing trade negotiations and accelerating competition on the AI front,” Sky Canaves, an analyst at EMarketer, said in an email.
Amazon reported total operating expenses increased 11% to $148.5 billion in the quarter.
Amazon ranks No. 1on the Transport Topics Top 100 list of thelargest logistics companies in North America, and No. 1 on the Top 50 list of thelargest global freight companies.
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