Amazon’s massive investment in artificial intelligence has raised doubts about future profitability despite record sales growth after the tech giant released its latest financial results.
According to Financial Times, for the three months ended June 30, Amazon’s net sales rose 10% to $148 billion. While the result was impressive, it missed analysts’ expectations of $148.6 billion. Still, net income multiplied several times and reached $13.5 billion, while the forecast was $11 billion.
One of the main focuses of investors was AWS, the company’s cloud computing unit. According to Amazon’s report, AWS revenue rose 19% to $26.3 billion, slightly more than analysts’ expectations of $26 billion. In addition, the growth rate surpassed the 17% increase reported in the previous quarter, indicating an ever-accelerating pace in the sector.
However, capital spending rose, raising investor concerns. Specifically, it saw a 50% year-over-year increase for the quarter (totaling $17.6 billion) in property and equipment funds. These funds were used to improve the company’s logistics and support AI infrastructure, including data centers and special chips.
Amazon CFO Brian Olsavsky said that capital spending is likely to increase further in the second half of the year, including significant investments in cloud infrastructure. He also said the company is working on supply chain efficiency and ensuring supply matches demand, especially in AI.
As a result, both Amazon and tech giants like Alphabet and Microsoft appear to be walking on thin ice in their approach to investing in AI-related services. Such significant investment should eventually pay off, as this push is likely to continue through the development phase of several new applications.
Although Amazon hasn’t released specific revenue figures for its AI services, the company said in May that the technology has evolved into a “multibillion-dollar business.” Olsavsky noted that customer demand for Amazon’s AI services is driving cloud sales growth.
In the e-commerce segment, Amazon continues to focus on opportunities to reduce costs and improve margins. To that end, the company is restructuring its North American logistics operations to reduce delivery times and costs. As Andy Jassy, Amazon’s chief executive, said, these changes allow Amazon to offer even cheaper, low-priced items that customers expect, opening up a customer population it may not have been serving. also .
Advertising remains one of Amazon’s fastest-growing businesses, with revenue up nearly 20% to $12.8 billion. Such an increase is notable, although slightly behind the same period growth of 24% in the second quarter. JPMorgan representatives noted that advertising is the most widespread segment of the service and one of the most profitable.
However, there appears to be some fluctuation in Amazon’s overall operating margins. After expanding from 4% to 11% at the beginning of 2023, they decreased slightly to 10% in the last quarter.
The market reacted cautiously to the results, with Amazon shares down as much as 8% in after-hours trading. A similar reaction appears to have followed financial reports from other tech giants in recent weeks, as investors have also been relatively skeptical about their big AI investments.
While Amazon continues to invest heavily in future technology and infrastructure, the challenge today is to maintain investor confidence and ensure steady growth in rapidly changing markets.
(Photo: Towfiqu barbhuiya)
See also: Amazon sues Nokia in escalating cloud patent battle
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