Amazon conference call: The company will become "stronger" in the tariff war, expanding the Q2 guidance range, and "removing some products" to maintain low prices

On Thursday local time, Amazon CEO Andy Jassy attempted to reassure investors during the first-quarter earnings call, stating that he is "optimistic" about the company's ability to emerge "stronger" from the current tariff environment.

Jassy used the COVID-19 pandemic as an example to illustrate how the company's wide selection and low-price strategy helped "customers find the products they want," despite ongoing economic uncertainty. Amazon was one of the biggest beneficiaries of the COVID crisis, as many consumers avoided physical stores and turned to online retailers for both essential and non-essential purchases.

Think about the pandemic when items like masks and hand sanitizers became hot-selling products. When you have the broadest selection like we do, along with millions of global sellers, you can better help customers find any product they need at lower prices than anywhere else.

Ultimately, when the market environment is uncertain, customers tend to choose their most trusted suppliers. With our truly broad selection, low prices, and fast delivery, we emerged from those uncertain times with a higher relative market share than when we started and are better prepared for the future. I am optimistic that this could happen again.

Financial Guidance Range Expanded to Address Tariff Uncertainty

Although Amazon's first-quarter earnings report exceeded expectations, its operating profit forecast for the current quarter fell short of market expectations.

The company expects second-quarter operating profit to be between $13 billion and $17.5 billion, while the market consensus expectation, according to LSEG data, is $17.8 billion. Amazon specifically mentioned "tariffs and trade policies" as one of the factors affecting its guidance.

Amazon CFO Brian Olsavsky stated that uncertainty surrounding Trump's comprehensive tariff policy persists, leading the company to issue a wider guidance range.

Our usual guidance range is already quite wide, but now the overall uncertainty we see, along with uncertainty in consumer demand and other factors, has led us to further expand this range. So we are watching closely. We believe this is a well-founded outlook for the second quarter at this time.

To Maintain Low Prices, "Some Products Have Been Delisted"

Jassy revealed that to cope with the impact of tariffs and maintain low prices, Amazon and some third-party sellers "have preemptively delisted some products." While some sellers may have to pass these higher costs onto customers, not all sellers will choose to raise prices.

We have a large number of sellers from many different countries, and not everyone will take the same approach.

So I think when you have greater diversity like we do, we have a better chance of allowing some sellers to decide how they will capture market share, and they won't pass all or any tariffs onto customers.

Jassy emphasized that the company is "focused on keeping prices low for consumers," although he acknowledged that the outcomes of tariffs are difficult to predict.

It is currently hard to predict what will happen with tariffs, and it is difficult to say where they will ultimately land and when they will settle

AWS Expands Capacity

AWS performed strongly in the first quarter of 2025, with growth in both revenue and profit margins. The growth of AWS's business is primarily attributed to the rapid development of generative AI, the acceleration of enterprise cloud migration, and support from technological innovations.

Jassy mentioned that AWS's profit margins are influenced by various factors, including investment levels, pricing strategies, and the growth of generative AI services. Although the profit margins are currently high, they may fluctuate in the future due to increased investments.

He also pointed out that AWS continues to grow in both generative AI and non-generative AI products. AWS's AI business has reached an annual revenue run rate of billions of dollars and is growing at a triple-digit percentage each year. AWS is working to increase capacity to meet the growing market demand.

Below is the full transcript of the conference call:

Amazon Q1 2025 Earnings Call

Operator:

Thank you for your support. Hello everyone, and welcome to Amazon's Q1 2025 financial performance conference call. Currently, all participants are in "listen-only" mode. After the presentation, we will conduct a Q&A session.

Today's conference call is being recorded. I will now turn the floor over to Mr. Dave Fildes, Vice President of Investor Relations. Thank you, sir. Please go ahead.

Dave Fildes, Vice President of Investor Relations:

Hello everyone, and welcome to our Q1 2025 financial performance conference call. Today, our CEO Andy Jassy and CFO Brian Olsavsky will be with us to answer your questions. As you listen to today's call, we recommend that you have a press release handy that contains our financial performance, metrics, and commentary for the quarter. Please note that unless otherwise stated, all comparisons in this call will be based on our performance for the comparable period in 2024. Our comments and responses to your questions reflect management's views as of May 1, 2025, and will include forward-looking statements.

Actual results may differ significantly. For more information on factors that may affect our financial performance, please refer to today's press release and the documents we have filed with the U.S. Securities and Exchange Commission (SEC), including our most recent 10-K annual report and subsequent filings. In this call, we may discuss certain non-GAAP financial metrics. You will find more disclosures regarding these non-GAAP metrics, including reconciliations to comparable GAAP metrics, in our press release, the slides from this webcast, and the documents we have filed with the SEC (all available on our Investor Relations (IR) website).

Our guidance incorporates the order trends observed to date and what we currently believe to be reasonable assumptions. Our performance is inherently difficult to predict and may be significantly affected by a variety of factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariffs and trade policies, as well as customer demand and spending, including concerns about economic recession and inflation Interest rates, regional labor market constraints, global events, the internet, online commerce, cloud services, and the growth rates of emerging technologies, as well as various factors detailed in our filings with the U.S. Securities and Exchange Commission. Our guidance assumes, among other factors, that we will not complete any additional business acquisitions, restructurings, or legal settlements. We cannot accurately predict the demand for our products and services, and therefore our actual results may differ significantly from our guidance. Now, I will hand the call over to Andy.

President and CEO Andy Jassy:

Thank you, Dave. Today, we reported revenue of $155.7 billion, a 10% year-over-year increase, excluding the impact of foreign exchange rates. Operating income was $18.4 billion, a 20% year-over-year increase, and free cash flow for the past 12 months was $25.9 billion. We are pleased with the continued growth of the business, but more importantly, we are satisfied with the further enhancement of our pace of innovation and customer experience.

In our retail business, we continue to improve product selection, enhance value for money, and speed up delivery, which has resonated strongly with consumers once again. Our rich selection of merchandise provides a wealth of choices for customers' shopping journeys. We welcome well-known brands such as Oura Rings, Michael Kors, and The Ordinary, as well as the new shopping experience at Saks, which offers exquisite fashion and beauty products from brands like Dolce&Gabbana, Balmain, Erdem, Jean-Baptiste Vallet, and Jason Wu Collection. We will continue to strive to keep prices low.

This is more important than ever, given the current uncertainty consumers are facing. In the first quarter, we held promotional events globally, helping consumers save over $500 million during the spring sales in the U.S. and Canada, the spring promotional days in Europe, and the Ramadan promotions in Egypt, Saudi Arabia, Turkey, and the UAE. Prime members will have more opportunities to save throughout the year, including the 11th Prime Day event in July. Over the past few years, we have made significant progress in improving the efficiency and cost-effectiveness of our delivery network. We have mentioned several times that a key turning point was regionalizing our national delivery network to create regional hubs.

By storing products closer to where customers live, we can deliver more orders faster, often with fewer packages and lower delivery costs. The next challenge is to ship as many products as possible to these regional nodes. Our inbound network (i.e., how we transport products to various distribution centers) had not fully leveraged this new regionalized structure, so we redesigned it and launched a new inbound architecture to expand the share of products we can place at each distribution center, thereby improving delivery speed and reducing service costs. In the first quarter, we once again set a new record for the fastest delivery speed for global Prime members, and in the first quarter, the number of items delivered the same day or the next day exceeded any previous quarter in our history

Looking ahead, we will continue to improve our newly designed inbound network, expand same-day delivery locations, and increase the number of robots and automation equipment in all office buildings. You will also see us expand the number of delivery stations in rural areas of the United States so that we can deliver goods to residents in low-density areas more quickly.

I would like to share some thoughts on the potential tariff increases that our business may face. Clearly, none of us knows when or where tariffs will ultimately be resolved.

We have not seen any weakening in demand. To some extent, we have seen an increase in purchases in certain categories, which may indicate that people are stocking up in anticipation of any potential tariff impacts. We have not seen a significant increase in the average selling price of retail goods. This partly reflects some advance purchases we made in first-party sales, partly reflects some advance stocking sales made by our third-party sellers, but a considerable portion of the reason is that most sellers have not yet adjusted their prices. Similarly, this may vary depending on where the tariffs are settled. Amazon is not the only seller affected by tariffs. Some companies will raise product prices, repackage them, and then sell them to American consumers.

Sometimes, we easily forget what Amazon sells. We do not primarily sell high average selling price items, although we do sell quite a few. In the first quarter, our essential goods grew at more than twice the rate of other businesses, accounting for one in every three items sold on Amazon's U.S. site. Even excluding Whole Foods Market and Amazon Fresh, Amazon remains one of the largest grocers in the U.S., with total sales exceeding $100 billion last year.

People buy a large number of everyday essentials on Amazon. We have an extremely rich selection, with hundreds of millions of unique SKUs, which means we are generally better able to respond to challenging environments than other companies. When there are disruptions, unexpected product trends emerge.

Think about the pandemic when items like masks and hand sanitizers became bestsellers. When you have the broadest selection like we do, along with millions of global sellers, you can better help customers find what they need at lower prices than anywhere else. Ultimately, when the market environment is uncertain, customers tend to choose their most trusted suppliers. With our truly extensive selection, low prices, and fast delivery, we have emerged from those uncertain times with a higher relative market share than when we started and are better prepared for the future. I am optimistic that this could happen again.

Now, let's talk about Amazon Advertising. We are committed to being the best platform for brands of all sizes to grow their businesses. We are pleased to see strong growth achieved on such a large base, with revenue reaching $13.9 billion this quarter, a year-over-year increase of 19%. Our extensive omnichannel advertising product portfolio is robust, helping advertisers reach an average of over 275 million ad-supported audiences just in the United States

This includes our top-of-funnel efforts to enhance brand awareness, as well as our bottom-of-funnel products that measure results at conversion points. Amazon Advertising provides brands with tools to reach target audiences across our owned entertainment assets (such as Prime Video, Twitch, and IMDb), live sports (such as NFL, NBA, and NASCAR), audio content (such as Amazon Music and Wondering), of course, our stores, and many other external websites (such as Pinterest and BuzzFeed). All of our audiences and measurement capabilities apply to the ads we serve to premium third-party publishers through Amazon DSP, while our secure "clean room" allows advertisers to analyze data, generate core marketing metrics, and understand their marketing performance across various channels. We continue to see significant opportunities to further expand the comprehensive services we offer to brands.

AWS grew 17% year-over-year in the first quarter, with an annualized revenue run rate now reaching $117 billion. We will continue to help organizations of all sizes accelerate their migration to the cloud, modernize their infrastructure, reduce costs, and accelerate innovation. We have signed new AWS agreements with numerous companies, including Adobe, Uber, Nasdaq, Ericsson, Fujitsu, Cargill, Mitsubishi Electric, General Dynamics Information Technology, GE Vernova, Booz Allen Hamilton, NextEra Energy, Publicis Sapient, Elastic, and Netsmart.

It is worth mentioning that over 85% of IT spending globally is still on-premises and has not yet migrated to the cloud. In my view, this equation will reverse in the next 10 to 20 years, which seems obvious. Before this generation of artificial intelligence emerged, we believed AWS ultimately had the opportunity to become a company with a revenue run rate in the hundreds of billions. Now we believe its scale could be even larger.

If you believe your mission is to make customers' daily lives easier and better, and that artificial intelligence will reshape every customer experience, then you will actively invest in AI, which is exactly what we are doing. You can see this in the thousands of AI applications you can build on Amazon. You can see this in our next-generation Alexa, called Alexa+. You can see this in how we apply AI to our order fulfillment network, robotics, shopping, Prime Video, and advertising experiences. You can also see this in the building blocks that AWS builds for internal and external builders, helping them create their own AI solutions. We are not stepping back from this. We are very consciously providing builders with as broad a range of capabilities across all layers of the AI stack as possible, in a cost-effective manner, enabling them to widely use AI in their businesses. At the foundation of these building models, our new custom AI chip Trainium2 has begun large-scale deployment and has significant appeal and demand Although we provide our clients with the capability to conduct AI testing across multiple chip suppliers, and in my view, this situation will continue, any client that undertakes large-scale AI testing will quickly realize that costs can become expensive. Therefore, Trainium2 offers a cost-performance advantage of 30% to 40% compared to other GPU-based instances, which is quite remarkable. To ensure AI can succeed as we expect, inference costs need to be significantly reduced. We believe this is part of our mission and responsibility, and we are committed to achieving this goal.

For those looking to leverage cutting-edge models to build generative AI applications, Amazon Bedrock is our fully managed service that provides a range of high-performance foundational models and a suite of attractive features to easily build high-quality generative AI applications. We are continuously iterating on Bedrock, adding Anthropic's Cloude 3.7 Sonnet hybrid inference model (their smartest model to date) and Meta's Llama 4 series models. We are also the first cloud service provider to fully open DeepSeek R1 and Mistral AI's Pixtral Large as fully managed models. Of course, we also offer our self-developed Amazon Nova advanced foundational models in Bedrock, with the latest Premier model released yesterday.

They provide cutting-edge intelligence and industry-leading cost-performance, with thousands of customers already using them, including Slack, Siemens, Sumo Logic, Coinbase, FanDuel, Glean, and Blue Origin. A few weeks ago, we launched Amazon Nova Sonnet, a brand new voice-to-voice foundational model that enables developers to build voice-based AI applications that are highly accurate, expressive, and human-like. Compared to other similar voice interaction models, Nova Sonnet has a lower word error rate and a higher success rate. So far, the tech community has been enthusiastic about the potential of agents, with nearly all agent use cases falling into the question-and-answer category.

Our goal is to enable agents to perform a wide range of complex, multi-step tasks, such as scheduling appointments, setting the lighting, temperature, or music ambiance for dinner guests at home, or handling complex IT tasks to improve business efficiency. Before Alexa Plus, there had been no similar action-oriented agents, but the technology to build these agents is still quite primitive, inaccurate, and requires ongoing human supervision. We have just released a research preview of Amazon Nova Act, a new AI model trained to perform actions in a web browser. It allows developers to break down complex workflows into reliable atomic commands, such as searching, checking out, or answering questions about the screen

It also allows them to add more detailed instructions for these commands where needed, such as "no insurance upselling." The Nova Act aims to improve the accuracy of current multi-step agent operations from 30% to 60% to over 90% by building the right modular components for these action-oriented agents. At the top of the stack are applications. Last quarter, Amazon Q launched a lightning-fast new agent coding experience in the command line interface as the most powerful generative AI assistant to accelerate software development and leverage users' own data, capable of autonomously executing complex workflows.

Customers are very satisfied with this. We also partnered with Amazon Q to launch GitLab Duo, enabling AI agents to assist in executing multi-step tasks such as new feature development, code-based upgrades for Java 8 and 11, while also providing code reviews and unit testing, all within the familiar GitLab platform. Our AI business has an annual revenue run rate in the billions and continues to maintain triple-digit year-over-year growth, and it is still in a very early stage. While we have every reason to be highly optimistic about AI, I want to remind everyone, as I conclude my comments on AWS, that there is still a significant amount of on-premises infrastructure that has yet to be migrated to the cloud.

Infrastructure modernization is far less glamorous than AI, but it is critical to any company's technology and innovation capabilities, developer productivity, speed, and cost structure. For enterprises to fully realize the potential of AI, they need to migrate their infrastructure and data to the cloud. I also want to briefly mention a few other points. As I have mentioned several times, in the first quarter, we launched the next-generation Alexa personal assistant, Alexa Plus, which is smarter and more powerful than previous versions, capable of answering almost any question and taking action. Prime members can use it for free, while non-Prime members will need to pay $19.99 per month. We have just begun rolling out Alexa Plus in the United States and will expand to other countries later this year. So far, people have been very fond of Alexa Plus. We are excited and honored to be involved in the joint venture to create the next generation of the highly acclaimed James Bond series. We recently appointed renowned producers Amy Pascal and David Heyman to produce the next James Bond film.

Additionally, just a few days ago, Project Kuiper achieved an important milestone by sending our first satellites into orbit, with more satellites set to launch, and we expect to begin providing services to customers later this year. I am proud of the achievements of our global team. We are excited about the work currently in development and underway, and next, I will hand it over to Brian to report on the latest financial situation.

Senior Vice President and Chief Financial Officer Brian T Olsavsky: Thank you, Andy

I will start with our revenue performance. Global revenue was $155.7 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange. This corresponds to a year-over-year adverse impact of $1.4 billion from foreign exchange this quarter. Global operating profit was $18.4 billion, approximately $400 million above the upper end of our expected range. These results include one-time charges affecting North America and international operating profit, which I will discuss later.

First, let’s start with the net sales by segment. North America segment revenue for the first quarter was $92.9 billion, an increase of 8% year-over-year. Our international segment revenue was $33.5 billion, also up 8% year-over-year, excluding the impact of foreign exchange. Global paid units grew by 8% year-over-year. Our top priority is to provide value to customers across all business areas. In the first quarter, we held multiple trading events globally, significantly enhancing customer engagement. We saw broad advantages in our key business investments, including record delivery speeds for major members through improved inventory layouts.

Our rich selection of products allows customers to choose items at different price points, especially in categories like groceries that include everyday essentials. These are the items people buy most frequently. We collaborate with millions of independent sellers worldwide. These sales partners are significant contributors to our rich product selection, with the global third-party sales unit mix accounting for 61% in the first quarter, unchanged from the same period last year. Speaking of profitability, the North America segment's operating profit was $5.8 billion, while the international segment's operating profit was $1 billion, with North America operating margin at 6.3% and international operating margin at 3%. As I mentioned earlier, this quarter we recorded some one-time charges related to historical customer returns that have not yet been resolved, as well as costs associated with receiving inventory early in the first quarter before expected tariffs took effect. Without these charges, North America and international operating margins would have been approximately 90 basis points, 90 basis points, and 70 basis points higher, respectively. Our North America operating margin would be 7.2%, and international operating margin would be 3.7%.

We are pleased with the team's continued efficiency in execution and delivery to customers. In the first quarter, our newly structured inbound network enhanced the productivity of our delivery and transportation network, optimizing inventory layouts and increasing the volume of single-package shipments. Ultimately, delivery costs were also reduced. After the first quarter, we will implement several initiatives to continue optimizing our cost structure, such as optimizing the inbound network, expanding same-day delivery points, extending rural delivery networks, and introducing robotics and automation technology in our facilities.

Better inventory layouts remain a top priority. Improved layouts can increase inventory selection, shorten transportation distances, and accelerate delivery speeds. Placing inventory in the right location at the right time can enhance the likelihood of combining multiple items into a single package, thereby reducing packaging and costs. While progress is not always linear, we have developed comprehensive plans to drive continuous improvement.

Turning to the advertising business. Advertising remains an important contributor to profitability for both North America and international businesses. Advertising revenue grew by 19% year-over-year. We are pleased to achieve accelerated growth on an increasingly expanding base We see that our omnichannel advertising services are gaining widespread adoption as brands appreciate our ability to connect with customers. We will also continue to invest in other long-term opportunities. These efforts are crucial for both our customers and Amazon's future, including Kuiper, for which we launched mass production design satellites earlier this week. We will launch more satellites throughout the year.

We are closely monitoring the macroeconomic environment, including the impact of tariffs. We are preparing for various outcomes and have taken a series of measures to safeguard the customer experience. We are doing our utmost to provide customers with low prices in a cost-effective manner. AWS's revenue for the first quarter was $29.3 billion, a year-on-year increase of 17%.

AWS currently has an annualized revenue run rate of over $117 billion. In the first quarter, we continued to see growth in generative AI business and non-generative AI products. As enterprises shift their focus to new plans, migrate more workloads to the cloud, restart or accelerate existing migrations from on-premises to the cloud, and fully leverage the power of generative AI, AWS's operating income reached $11.5 billion, reflecting our continued growth and our focus on enhancing overall business efficiency. As we mentioned before, we expect AWS's operating profit margin to fluctuate over time, partly due to our investment levels at any given point. We plan to increase capacity in the second half of the year.

Now let's talk about our cash capital expenditures, which were $24.3 billion in the first quarter. Most of this expenditure is aimed at supporting the growing demand for technological infrastructure. This is primarily related to AWS, as we are investing to support the demand for AI services and continuously increasing investments in custom chips like Tranium and the technological infrastructure that supports our North American and international businesses.

We are also investing in our order fulfillment and transportation network to support future growth and enhance delivery speed and cost structure. This investment will support our growth over the coming years. While we primarily focus on operating income, I would like to point out that our net profit of $17.1 billion in the first quarter included $3.3 billion in pre-tax earnings, which are included in non-operating income. This is related to our investment in Anthropic.

This activity is unrelated to Amazon's ongoing operations but is the result of converting some of our convertible bonds into non-voting preferred stock. Regarding the second quarter performance guidance, it is important to note that our performance guidance considers multiple possibilities and takes into account first-quarter performance, quarterly performance trends, and expectations for the macroeconomic environment. We expect second-quarter net sales to be between $159 billion and $164 billion.

We have estimated the impact of foreign exchange rate fluctuations on a year-on-year basis based on current exchange rates, expecting an adverse impact of about 10 basis points this quarter. It is important to note that global currencies may experience volatility this quarter. We expect second-quarter operating profit to be between $13 billion and $17.5 billion. This estimate has taken into account the seasonal increase in stock-based compensation expenses for the second quarter, which is due to the timing of our annual compensation cycle. **

The external environment remains complex. As we have always done, we focus on controllable inputs to ensure customer experience. We will strive to maintain customer trust in reasonable prices, diverse choices, and convenient services. We will continue to focus on enhancing customer experience.

We firmly believe that putting customers first is the only reliable way to create lasting value for shareholders. Now, let's move on to your questions.

Operator:

Thank you. We will now begin the Q&A session. Please limit your questions to one per caller. (Operator instructions) The first question comes from Ross Sandler at Barclays. Please go ahead.

Ross Sandler: Great.

I will focus on AWS and AI. Andy, it seems you have introduced more P5 GPU instances since February to support all these new AI workloads. How would you describe the supply-demand imbalance for AI workloads you mentioned in the first and second quarters? When do you think AWS will be able to generate enough AI revenue to drive accelerated growth? Will this happen this year? Given your capacity constraints, do you think it is more likely to happen next year? Thank you very much.

President and CEO Andy Jassy:

Thank you, Ross. What I want to say is that we have introduced a large number of P5 (a type of NVIDIA chip instance) and are rolling out more Trainium 2 instances as quickly as possible.

I want to say that our current AI business has annual operating revenue in the billions and is growing at a triple-digit percentage each year. The capacity we invest in is consumed just as quickly. So, I believe that if we had more capacity, we could help more customers and bring in more revenue for the company. We have more Trainium 2 instances, and the next generation of NVIDIA instances will also be launched in the coming months.

I expect that other parts of the supply chain will also be a bit congested, such as motherboards and some other components. But I do believe—partly because the demand is currently so high. However, I believe that over time, supply chain issues and capacity issues will continue to improve.

Operator:

The next question comes from Eric Sheridan at Goldman Sachs.

Please go ahead with your question.

Eric Sheridan:

Thank you very much for taking this question. Perhaps I can break it into two parts. First, Andy, strategically, given the many uncertainties about how the global trade environment may change in the coming months, how do you view the company's mid-term positioning? What key strategic priorities do you think will allow the company to leverage these factors in some way based on various outcome scenarios? How will you prioritize these investments in the coming months? Then, regarding the forward operating profit guidance for the first quarter, are there any cost factors we should consider that align with investments related to the trade situation, which may not recur later this year or next year? Thank you very much

Unidentified speaker:

Thank you, Eric. It's difficult to predict how tariffs will evolve. It's hard to say when and where a resolution will be reached. So many of the short-term and medium-term issues we are considering actually relate to our long-term goal, which is how to provide customers with the broadest selection at the lowest possible prices. In recent years, perhaps there has been no more important moment than maintaining low prices. We are fully focused on this, quickly delivering products to customers and serving them well.

This is at the core of our work, and you can see the different initiatives we have taken under these priorities. As a first-party seller, we have pre-purchased some inventory. Our third-party sellers have also procured some goods in advance so that they have inventory here as well. We encourage all of this because we are committed to providing customers with the lowest possible prices.

I believe that when you have such a wide selection as we do, and our selection is much broader than other retailers, it means that when you have this continuity, regardless of trends, you can better help customers find what they want. I mentioned in my opening remarks what happened during the pandemic; you can be sure that some things were unpredictable for us, and what customers truly value and want is different from before. By the way, this could be something simple, like just a preference for brands that people may not have known about before, but they are more affordable for customers. And I think that when you have over 2 million sellers, another thing that people easily forget is that if tariffs do increase, they won't all adopt the same strategy.

What I mean is, many sellers will decide to pass those higher costs onto the end consumer, but we have many sellers in many different countries, and not all sellers will adopt the same strategy. So I think that when sellers like us have greater diversification, we are more likely to have some sellers decide to capture market share themselves rather than pass all or any tariffs onto consumers. Therefore, I believe that when consumers come to us, they are more likely to find a more diverse selection and lower prices. Lastly, I want to say that in many of our businesses, especially over the past six years or so, we have been diversifying our production locations in the long term. I want to say that our previous concentration on producing components for AWS or devices in China was much higher than it is now, and we have achieved significant diversification during this time. We believe this is a wise move. That’s some of the measures we have taken to ensure we protect customers in the short, medium, and long term. But it turns out that most of these measures are what we are most focused on, namely providing a truly wide selection, offering ultimate choices, providing truly low prices, and fast delivery.

Senior Vice President and Chief Financial Officer Brian T Olsavsky:

Eric, let me address your question about performance guidance, especially regarding operating profit. I think what you just asked was about the costs that may arise in the second quarter. I want to reiterate what I mentioned earlier. Stock compensation typically rises in the second quarter compared to the first quarter and will reset a rate that will last for the next four quarters

You can look at historical trends to understand. Secondly, we did have some additional Kuiper launch costs in the second quarter. You saw a launch this week. It is worth noting that we will expense these launch costs to the commercialization phase, which we plan to achieve later this year.

Operator:

Thank you. The next question comes from Justin Post at Bank of America. Please go ahead.

Justin Post: Great.

Thank you. I want to return to the AWS question. I know you mentioned before that AWS revenue can be quite volatile. Can you explain, aside from capacity, why revenue might fluctuate up and down? You see some competitors with pretty good growth rates. How do you view the differences? Clearly, AWS's revenue growth is substantial, but how do you see the differences compared to some competitors? Thank you.

President and CEO Andy Jassy:

Well, first I want to say that we have often mentioned that revenue can be unstable, and this has existed even before the emergence of AI in the past few years. The reason lies in the sales cycle, especially for enterprises. This is also true for startups. What you really want is to have the kind of capabilities that startups primarily choose to run on your platform.

Indeed. Looking at the startup space, over the past 10 to 15 years, the vast majority of successful startups have run on AWS. When these startups find product-market fit and achieve significant growth is unpredictable. They find it hard to predict, and we find it harder to predict. The same goes for enterprises, but in a different way. The sales cycle for enterprises is that you spend time trying to convince people to migrate from on-premises to the cloud, and then you provide them with the right solutions, after which you choose a set of projects where you have accumulated experience. Sometimes they will use system integrators, sometimes they will use our own professional services, and sometimes they will do it themselves.

Then comes the next batch of migrations, which take time; some companies can complete them quickly, while others take longer. Many times, they are excited and enthusiastic about the cost advantages and speed of innovation of migrating to the cloud, and the originally smaller next batch of migrations turns into a larger next batch of migrations. All of these situations have been ongoing for a long time. It is hard for us to predict because it really depends on how they want to arrange the order of migrations and resource investments. Then there is AI, which has its own very rapid growth cycles, especially in certain types of use cases, and these cycles can change. Let me give a few examples. In the early days of AI development, what you saw most were initiatives to improve productivity and avoid costs. We have seen this from many AWS customers, and we have also done a lot of such work using AI internally at Amazon. Then, I would say, you also see large-scale training.

Many of these are also running on this basis. As you know, Anthropic is building the next few training models based on our AWS chips. Then, you have seen several very large chatbots In the past few months, what you've seen is the explosive growth of coding agents. If you only look at the growth of these coding agents over the past few months, you'll find companies like Cursor or Vercel, which are heavily running on AWS. But just looking at the growth over the past few months tells you a lot.

You simply cannot predict this kind of growth. That's why it seems abrupt. Sometimes, you experience significant growth that you didn't predict before and couldn't have predicted. After that, they may grow at a decent pace, but the growth rate may vary before the next explosive growth.

I want to tell you that the interesting thing about the field of artificial intelligence I just mentioned is that we haven't even touched on all the other customer experiences that are about to be reshaped, as well as all the other agents that are about to be built, which will take on many different roles today, and these roles are—despite our extensive reasoning in these areas, I want to say that we haven't even reached the second good ball of the first batter in the first inning. It is still too early. Then I want to say something about how to view relative growth rates. You have to—year-over-year growth rates are actually just a function of the percentage growth of your operating base.

Our base in terms of technological infrastructure is much larger than that of other companies. So, considering a revenue run rate of $117 billion with a year-over-year growth of 17%, that is still quite a significant growth. As I said, if we had greater capacity, I believe we could do more. I expect that capacity will ease in the coming months.

Operator:

Thank you. The next question comes from Doug Anmuth of JP Morgan. Please go ahead.

Doug Anmuth:

Thank you for answering these questions.

One is for Brian, and one is for Andy. Brian, I want to follow up on AWS, but mainly want to talk about margins. Over the past few years, we've seen significant fluctuations in margins, and now it's nearly 40%. Perhaps you could talk about what has driven our strong performance and how we should think about normalized margins going forward.

And then, Andy, what are your comments on Alexa's shift to more complex tasks? Can you elaborate on this? In terms of Alexa, these products have been around for a long time and have different use cases. How do you get users to better change their behavior through Alexa? Thank you.

President and CEO Andy Jassy:

Thank you, Doug.

I'll answer your first question. As you mentioned, AWS performed strongly this quarter, and margins are high. I believe this is due to our strong growth momentum and the impact of our continued investment in innovation and technology. Let me give you a few examples.

Therefore, we have invested in software and process improvements, ultimately optimizing server capacity, which has reduced infrastructure costs. We have been developing more efficient networks using low-cost custom network devices. We are committed to maximizing the energy efficiency of existing data centers, which not only reduces costs but also recovers power for other newer workloads We have also seen the impact of advanced custom chips like Graviton. They not only reduce our costs but also provide our customers with higher cost-effectiveness. But you are right, profit margins are influenced by many factors, including our level of investment, competitive pricing, and the rapidly growing portfolio of generative artificial intelligence services, which will continue to evolve in the coming years. Therefore, we have indeed made significant investments in infrastructure and plan to do so in the second half of this year.

So we will start to see its impact. We are satisfied with the team's performance in cost savings. This is a focus, and at the same time, we will expand the services and functionalities for our customers. Regarding Alexa, we are very excited about Alexa+.

As I mentioned earlier, she is smarter, more capable, and able to take concrete actions. So far, most existing smart agents are actually only capable of answering questions, which was remarkable at launch. But I believe the future of smart agents is not just about intelligence, but also about being able to take action. This actually requires an excellent model, as well as the ability to synchronize that model and align it with the capability to take the right actions, execute, and achieve the correct APIs; otherwise, you might get very undesirable results. Therefore, we have put tremendous effort into Alexa+. We have started promoting it in the past few weeks. Currently, it has over 100,000 users, and more will join in the coming months. So far, the feedback from our customers has been very positive.

People are very excited about it. I think it is much more powerful than the previous Alexa capabilities. We are very fortunate because we already have over 500 million devices spread across people's homes, offices, and cars. Therefore, we already have a wide distribution channel.

But to some extent, people will rethink what they can do because you get used to certain patterns. Even something as simple as not needing to speak to Alexa anymore, we are accustomed to saying "Alexa" before we want each action to happen. You will find that you actually only need to say it once. Then, the conversation continues, and you no longer need to say "Alexa."

I am fortunate to have used the Alpha and Beta versions for a few months. It took me a while to realize that I didn't need to keep shouting "Alexa." It feels liberating not to have to shout "Alexa." I think this is just the experience of trying something new.

For example, if you have guests over for dinner on Saturday night, you can tell Alexa, "Please open the curtains, turn on the lights in the driveway and porch, raise the temperature by 5 degrees, and play some soothing music suitable for dinner." She will do it. With such an experience, you will want to do it a few more times. When I announced the event news in New York, I asked her what we had going on downtown. I asked her for great Italian restaurants or pizza places, and she gave me a list and asked if I needed to make a reservation. I agreed, and she helped me book it and confirmed the time. Just like that, when you develop such a habit and have such experiences, they become very, very useful It's like having a great personal assistant, which most people in the world do not have.

So I think as people get more accustomed to it, they will realize what it can do, and we won't stop there. We also plan to add more features in the coming months.

Operator:

Thank you. The next question comes from Morgan Stanley's Brian Nowak.

Please go ahead with your question.

Brian Nowak:

Thank you for taking my question. Hi, Andy and Brian. I have a question for each of you.

Andy, your retail business is very complex, with many moving parts. I imagine you have a lot of reliable data on your expectations for demand throughout the year and during holidays. When you look back at the uncertainties in the business and tariffs, could you briefly outline one or two key operational areas you are most focused on to ensure that Prime Day, Thanksgiving, and the holiday season go as smoothly as possible? Secondly, Brian, back to Eric's earlier question, as we consider the second-quarter EBITDA guidance, are there any one-time costs or tariff-related costs similar to the $1 billion you mentioned in the first quarter? Thank you.

President and CEO Andy Jassy:

Thank you, Brian.

Regarding the retail question, I would say that the areas we are most focused on are to ensure that we not only have a great Prime Day, but that Prime Day is just one event, as you know, and the peak season is similar. We are committed to providing a great experience for customers throughout the year. It’s clear that we will do our best to help sellers, as our sellers also face uncertainties. Therefore, we are working hard to ensure a good experience.

We strive to ensure seller diversity and low prices. I think you also have to be very careful about how much inventory you put into your fulfillment nodes each time, because you can imagine a scenario where either you (if you are a first-party seller) or many third-party sellers want to get as much inventory as possible as early as possible, trying to get things done before the deadline. If you have too much inventory in your fulfillment network, it can severely impact your productivity and reduce your ability to ship to customers on time at an ideal cost structure.

So we have been learning over the years how to manage this thoughtfully, and I think the team is doing a great job balancing this now.

Senior Vice President and Chief Financial Officer Brian T Olsavsky: Brian, regarding your question about the second quarter, I think I just want to reiterate what I said before. We have a stock-based compensation increment mechanism, and if you look back at our history, you will understand that this is normal. We also have some additional Kuiper expenses.

Specifically, you asked about tariffs. Based on the current tariffs, we do need to pay tariffs for retail purchases. The tariff impact in the second quarter is not significant. As I mentioned earlier, we did a lot of inventory pre-purchasing in the first quarter. But overall, I think considering the uncertainties, we slightly expanded the sales range we previously provided Our sales range is usually quite broad, but the overall uncertainty we see, along with the uncertainty in consumer demand and all other factors, has led us to slightly widen our sales range. So, we are waiting to see. We believe this is a prudent judgment regarding the sales situation for the second quarter at this time.

As Andy mentioned earlier, we actually saw some strong momentum in April, thanks to pre-orders for some products, and the advertising business also performed strongly. So, we believe there are many positive trends this quarter, but there is also uncertainty at the moment.

Operator:

Thank you. Our last question comes from Brent Thill of Jefferies.

Please go ahead with your question.

Brent Thill:

Thank you. Regarding AWS, I'm curious if you can tell us the amount of backlog orders. Also, Andy, regarding your mention that many core workloads have yet to migrate to the cloud, can you provide an update on what you are seeing? Are you seeing a return of enterprise-level workloads? Do you think AI cloud migration will bring some confusion? Regarding the timing of migration, please share your thoughts on that.

Thank you.

David A Zapolsky, Senior Vice President of Global Public Policy and General Counsel:

Hey, I'm Dave. I'll start with the backlog orders and then hand it over to Andy. The backlog order amount for the first quarter was $189 billion.

This is an increase of about 20% compared to the same period last year. Its weighted average remaining life is 4.1 years. Regarding AWS, Brent, about the situation of un-migrated workloads we have observed, I want to say that before the pandemic, we were making very positive progress in a methodical way, almost like a metronome, as enterprises decided to abandon on-premises infrastructure due to the speed of innovation, developer productivity, and the cost advantages of cloud computing. Then, when the pandemic hit, during the second half of those years, the economic situation looked full of uncertainty, and everyone was trying to optimize costs, by the way, we were doing that internally as well.

Then, as we began to emerge from that trend, you would see generative AI thriving, with everyone wanting to find a way to handle one or a set of workloads because people saw its potential. It has also generated great public interest. So, over the past 16 to 18 months or so, we have seen enterprises realize they need to balance both. They want to do AI. Currently, they have a variety of pilot projects in AI, many of which will succeed, while others will not.

Successful enterprises will scale up, but they still have many plans in AI that have yet to be implemented, either because they are building skill sets in this area, or because they are selecting the first set of skills to gain experience, or because they are waiting for inference costs to continue to decline, which they will indeed decline. I mean, if we don't keep lowering inference costs, we know how AI will expand, even though it is currently growing rapidly. But at the same time, I want to say that we see enterprises increasingly realizing that if they do not migrate their infrastructure to the cloud, they are essentially giving up readily available opportunities Due to all the reasons I mentioned earlier, you will see these plans rise again.

As I mentioned in a previous issue, you cannot decide to migrate infrastructure from on-premises to the cloud in three months. This is usually a process that takes years; some companies progress quickly, while others progress more slowly, but they will do it in phases and with careful consideration, as they cannot afford the consequences of applications not functioning properly during the migration. We have achieved significant success in these discussions, and some companies have chosen to transform their infrastructure on AWS. I believe you will also see this situation continue to develop in the future.

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Thank you for taking the time to join our event today and for your questions.

The replay will be available on our investor relations website for at least three months. Thank you for your interest in Amazon, and I look forward to communicating with you again next quarter.

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Thank you for your participation; the event has ended.

This article was translated with AI assistance, with some parts omitted