Amazon's Stock Falls After Revenue Shortfall and Heavy AI Spending, Even as AWS Thrives

By Kristoff De Turck - reviewed by Aldwin Keppens

Last update: Aug 2, 2024

Amazon's revenue and profit forecasts for the third quarter have fallen short of expectations. The company spent $35 billion on AI investments and plans to accelerate this spending pace. However, a positive surprise was the faster-than-expected expansion of its cloud division, AWS.

Financial results for its second quarter ended June 30, 2024

Key Points:

Q2 Revenue

$148 billion, slightly below the analyst forecast of $148.6 billion.

Q3 Forecast:

Sales: Expected between $154 billion and $158.5 billion, below the consensus estimate of $158.4 billion.
Operating Profit: Forecasted to range between $11.5 billion and $15 billion, compared to the analyst estimate of $15.7 billion.

AI Investments:

First Half 2024: $35 billion spent on AI.
Second Half 2024: Plans to increase AI investment further due to strong demand for both generative and non-generative AI.

AWS Growth:

Revenue: Increased by 19% to $26.3 billion, surpassing the $26 billion consensus.
Driver: High demand for AI services.

Management Insights:

Server Capacity: Emphasis on sufficient investment to avoid AWS operational issues.
AI Demand: Predicts rapid AI growth, pushing more businesses to the cloud.
Customer Preferences: Importance of offering a choice among various AI models and chips.

Cost-Saving Potential:

AI Tools: Such as the Q chatbot, which reduces workload for software developers.

Amazon is navigating a challenging period marked by underwhelming revenue and profit forecasts for the third quarter, leading to a significant drop in its stock price. Despite this, the company is heavily investing in AI, spending $35 billion in the first half of the year with plans to accelerate this investment due to strong market demand.

While these investments have raised concerns among investors, Amazon's cloud division, AWS, has shown impressive growth, driven by the demand for AI services. The company remains optimistic about the future, emphasizing the importance of adequate server capacity and offering diverse AI solutions to meet customer needs. However, the market's reaction indicates a cautious outlook on Amazon's heavy spending and future performance.