Stronger than forecast revenues for Amazon still saw a drop in its share price yesterday as analysts expressed concern over a relatively gloomy financial outlook.
Yesterday (31 July) brought good and bad news for Amazon. Despite an excellent quarter two, with net sales up 13pc to $167.7bn, the gloomy financial outlook had traders pressing sell. Shares dropped some 7pc after the earnings announcement.
The lower financial outlook was largely due to uncertainty around the effects of the current US tariffs, and the need for major investment in AI, while many analysts on the earnings call questioned the slow rate of growth of Amazon’s cloud service AWS compared to its competitors – this despite a 17.5pc growth year on year.
“There continues to be a lot of noise about the impact that tariffs will have on retail prices and consumption,” said Andy Jassy, president and CEO of Amazon.
“As we said before, it’s impossible to know what will happen. Where will tariffs finally settle, especially China? What happens when we deplete the inventory we forward bought or that our selling partners forward deployed in advance of the tariffs going into effect? If costs end up being higher, who will absorb them?”
On the earnings call Jassy was bullish about AI and automation, flagging that Amazon had deployed its one millionth robot across its global fulfilment network, and had rolled out Deepfleet, its AI which he says improves robot travel efficiency by 10pc.
“This combination of robotics and generative AI is just getting started,” he said. “And while we’ve made significant progress, it’s still early with respect to what we’ll roll out in the next few years.”
On the earnings call, Jassy was questioned several times on the relatively low growth in AWS cloud services, and he was quick to dismiss that as just “a moment in time”, admitting that AWS did not have the supply to meet customer demand.
“Year over year percentages and growth rates are always a function of the base in which you operate. And we have a meaningfully larger business in the AWS segment than others. I think the second player is about 65pc of the size of AWS.”
On the supply constraints for AWS, Jassy pointed to unavoidable delays.
“The single biggest constraint is power, but you also see constraints off and on with chips and then some of the components to actually make the servers,” he said.
“I don’t believe that we will have fully resolved the amount of capacity we need for the amount of demand that we have in a couple quarters. I think it will take several quarters. But I do expect that it’s going to get better each quarter. I’m optimistic about that.”
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