[Financial Summary] Amazon falls due to overtime trading “red light” for profit due to expansion of AI investment

Although sales of the cloud business Amazon Web Services (AWS) maintained high double-digit growth in the 2nd quarter, the overall sales outlook for the 3rd quarter was unclear, and there was a red light for sluggish demand in the cloud business. Meanwhile, Amazon's profit forecast for the third quarter also fell short of expectations, indicating that profitability is under pressure because high-tech companies are investing large amounts of money in the artificial intelligence (AI) field.

Earnings Highlights
Amazon's second-quarter sales and operating profit growth slowed to 10% and 91%, but they exceeded expectations. Sales of the cloud business AWS increased by nearly 19%, exceeding expectations. The sales forecast for the third quarter is at least 8%, which is the lowest growth rate in the past year and a half. The operating profit forecast decelerated sharply, and profit increased by at least 3%. It reflects the scale of investment in AI services that exceeds expectations.

Second quarter (April-June)
●EPS (earnings per share):1.26Dollars (95% increase over the same period last year; forecast $1.04)
●Operating profit:14.672 billionDollars (91% increase over the same period last year, forecast 13.59 billion dollars)
●Operating profit margin:9.9%(5.7% increase compared to the same period last year; forecast 9.13%)
●Sales volume:147.977 billionDollars (10% increase over the same period last year, forecast 148.777 billion dollars)
--By business
　● Online stores:55.392 billion dollars (5% increase over the same period of year, forecast 55.55 billion dollars)
　● Physical stores:5.206 billion dollars (4% increase from the same period last year, forecast 5.26 billion dollars)
　●Third Party:36.201 billion dollars (12% increase from the same period last year, forecast 36.65 billion dollars)
　●AWS:26.281 billion dollars (19% increase from the same period last year, forecast 25.98 billion dollars)
　● Advertisements:12.771 billion dollars (20% increase from the same period last year, expected 13 billion dollars)
--By region
　●North America:90.033 billion dollars (9% increase from the same period last year, forecast 89.98 billion dollars)
　●Overseas:31.663 billion dollars (7% increase from the same period last year, forecast 32.87 billion dollars)

We plan to increase the investment amount in the second half of the fiscal year, which exceeds AWS growth expectations
According to analysts, the lower-than-expected profit forecast suggests that Amazon is investing more than expected to meet demand for AI services. Amazon's Chief Executive Officer Andy Jassie (CEO) is promoting cost reduction, and while focusing on the profitability of e-commerce, which is the company's main business, he is investing a large amount of money in AI services. Amazon describes AI services as “businesses where profits of several billion dollars can be expected.”

AWS attracted attention at the financial results briefing, and CEO Jassie and Chief Financial Officer Brian Olsafsky (CFO) evaluated its potential for growth.

“Assuming that 30.5 billion dollars were invested in capital investments such as AWS in the first half of this year,Capital investment is expected to increase in the second half of 2024We anticipate that the majority of that will be expenditure to support the growth required for the AWS infrastructure,” Olsafsky added. “With generative AI and other AI workloadsStrong demand is seen” he said.

Expansion of AI investment as operating profit forecasts fall short of expectations
Forecast for the third quarter (July-September)
●Sales volume:1540 to 158.5 billion dollars (forecast: 158.4 billion dollars)
●Operating profit:115 to 15 billion dollars (forecast: 15.66 billion dollars)

The third-quarter outlook disappointed the market. When calculated using the forecast range, Amazon predicts that sales for the third quarter will grow by about 8% to 11% compared to the same period last year, which is lower on average than the expectations of analysts near the upper limit of guidance. If the lower bound of this forecast is correct, Amazon's third-quarter earnings growth rate will be the lowest since 2022/12.

According to comments, this outlook raises concerns about poor prospects for Amazon's cloud business, which is a major driving force for profit growth. Earnings forecasts for the third quarter, which are far below expectations, suggest that Amazon corporate customers strictly control costs against the backdrop of economic uncertainty, and demand for AWS is sluggish.