Amazon profits surge 35 per cent but forecast sinks share price

An Amazon Prime delivery person lifts packages while making a stop at a high-rise apartment building, Nov. 28, 2023, in Denver. (AP Photo/David Zalubowski)

Amazon reported a 35 per cent jump in quarterly profits Thursday as the e-commerce giant said major investments in artificial intelligence began paying off.

But the Seattle-based company’s profit outlook for the current quarter came in lower than hoped for, with investors worried that the cost of AI was weighing on the bottom line.

Amazon’s share price was trading about six per cent lower in after hours trading.

This was despite a stellar second quarter that exceeded analyst expectations, much like it did for its AI focused rivals Google, Microsoft and Meta, which posted bumper results for the period.

“Our conviction that AI will change every customer experience is starting to play out,” said Chief Executive Andy Jassy, pointing to the company’s expanded Alexa+ service and new AI shopping agents.

Amazon posted net profit of US$18.2 billion for the second quarter that ended June 30, compared with US$13.5 billion in the same period last year.

Net sales climbed 13 per cent to US$167.7 billion, beating analyst expectations and signaling that the company was surviving the impacts of the high-tariff trade policy under U.S. President Donald Trump.

“There continues to be a lot of noise about the impact that tariffs will have on retail prices and consumption. Much of it thus far has been wrong and misreported,” Jassy told analysts.

‘Curveballs’

Amazon Web Services (AWS), the company’s world leading cloud computing division, led the charge with sales jumping 17.5 per cent to US$30.9 billion.

The unit’s operating profit rose to US$10.2 billion from US$9.3 billion a year earlier.

The strong AWS performance reflects surging demand for cloud infrastructure to power AI applications, a trend that has benefited major cloud providers as companies race to adopt generative AI technologies.

But investors seemed worried about Amazon’s big cash outlays to pursue its AI ambitions, sending its share price more than three percent lower in after-hours trading.

The company’s free cash flow declined sharply to US$18.2 billion, down from US$53 billion in the same period last year, as Amazon ramped up capital spending on AI infrastructure and logistics.

The company spent US$32.2 billion on property and equipment in the quarter, nearly double the US$17.6 billion spent a year earlier, reflecting massive investments in data centers and backroom capabilities.

Amazon has pledged to spend up to US$100 billion this year, largely on AI-related investments for AWS.

For the current quarter, Amazon forecast net sales between US$174.0 billion and US$179.5 billion, representing solid growth of 10-13 per cent compared with the third quarter of 2024.

But operating profit was forecast in a wide range from US$15.5 billion to US$20.5 billion in the current third quarter, which was more cautious than some had hoped for.

The caution indicates that “there’s still potential for curveballs from ongoing trade negotiations and accelerating competition on the AI front,” said Emarketer analyst Sky Canaves.