Amazon surpassed Wall Street expectations for second-quarter revenue on Thursday, as robust growth in its cloud-computing segment mitigated ongoing substantial expenditures on artificial intelligence, resulting in a share price increase of over 12% at the market open on Friday. The e-commerce giant has revised its spending forecast for the year upward to $220 billion, reflecting an increase of $20 billion, as the group highlighted the rising costs associated with memory chips. Amazon has notably increased its expenditure on AI infrastructure, with capital expenditures over the trailing 12 months reaching $173 billion.
The company indicated that the significant rise in property and equipment acquisitions was largely due to investments in AI. The company’s increase in AI-related investments has posed a potential risk to free cash flow. Investors have recently expressed concerns regarding the potential for these expenditures to ultimately yield sustained profitability. Those concerns were underscored by Amazon’s negative free cash flow of $7.6 billion, which analysts indicated was indicative of “the cash pressures facing hyperscalers as they race to stay ahead in the AI race.” Nonetheless, the investments have contributed to the enhancement of cloud capacity and the development of AI services.
In light of this context, CEO Andy Jassy informed investors during a post-earnings call that the division, Amazon Web Services, has the potential to reach a trillion dollars in annual revenue “in time.” Sales at AWS increased by 37% compared to the previous year, reaching $42.2 billion in the quarter ending June 30, marking the fastest growth rate in 18 quarters. Overall, group-wide revenue for the period reached $200.6 billion, exceeding analysts’ expectations of $196.16 billion. Earnings per share reached $5.75; however, this figure is not directly comparable to the consensus estimate due to the inclusion of a substantial one-time gain from investments.
Net income encompassed $53.4 billion in non-operating pre-tax other income, chiefly associated with Amazon’s investment in the AI start-up Anthropic. For the third quarter, Amazon has projected revenue in the range of $197 billion to $202 billion, which falls short of analysts’ consensus estimate of $203.9 billion. The company anticipates operating income in the range of $22.5 billion to $26.5 billion, an increase from $17.4 billion reported in the previous year. “If you like MSFT’s print yesterday, you’re sure going to like this AMZN print,” analysts said.