AWS's 17% growth rate lags behind competitors, Amazon plummets in after-hours trading as the effectiveness of massive AI investments is questioned

According to Zhitong Finance APP, Amazon (AMZN.US) released its second-quarter financial report after the market closed on Thursday Eastern Time, and the stock price fell in response. The company's third-quarter operating profit guidance fell short of expectations, and its cloud business growth lagged behind competitors, prompting investors to explore whether the company's substantial investments in artificial intelligence have yielded results.

Data shows that in the second quarter, Amazon's total revenue grew by 13% to $167.7 billion, far exceeding the market average expectation of $162.1 billion. Earnings per share were $1.68, surpassing the market average expectation of $1.33.

Notably, Amazon's cloud computing service provider, Amazon Web Services (AWS), saw revenue growth slightly exceeding 17%, reaching $30.9 billion, just above the analyst average expectation of $30.8 billion.

Meanwhile, Amazon's Q2 advertising business revenue reached $15.7 billion, a year-on-year increase of 23%, exceeding the market expectation of $14.9 billion, making it a highlight of this financial report. Although the online retail giant's online advertising division is far smaller in scale compared to Amazon's retail and cloud businesses, it has become an increasingly important source of profit and is now the third-largest digital advertising platform in the world, behind Meta (META/US) and Alphabet.

The company's Q2 online store business revenue grew by 11% year-on-year to $61.485 billion, exceeding the market average expectation of $59 billion. Seller services revenue reached $40.3 billion, an 11% year-on-year increase. Analysts had previously expected $38.7 billion.

By region, Amazon's Q2 revenue in North America grew by 11% year-on-year to $100.068 billion, while international revenue grew by 16.2% year-on-year to $36.761 billion.

Looking ahead, Amazon stated in a statement that its operating profit for the third quarter ending in September is expected to be between $15.5 billion and $20.5 billion, while the average analyst expectation is $19.4 billion; sales during the same period are expected to be between $174 billion and $179.5 billion, exceeding the average analyst expectation of $173.2 billion.

CEO Andy Jassy is engaged in an arms race for artificial intelligence infrastructure with Microsoft (MSFT.US) and Google parent Alphabet (GOOGL.US), requiring significant investments in data centers. Previously, both competitors released strong earnings reports, indicating they have benefited from the AI boom.

Amazon's capital expenditures for this quarter reached a record $31.4 billion, an increase of about 90% compared to the same period last year. CFO Brian Olsavsky stated that this level of spending "roughly represents" the company's planned investments for the second half of the year.

DA Davidson analyst Gil Luria pointed out that given the higher growth rates reported by Microsoft and Google, AWS's revenue growth is "very disappointing." In the three months ending in June, Microsoft Azure's revenue grew by 39%, and Google Cloud's revenue grew by 32%.

During the earnings call following the report release, analysts pressed Jassy: why is AWS's growth lagging behind competitors in the context of surging demand for AI workloads? Morgan Stanley analyst Brian Nowak stated during the call, "There is a sentiment on Wall Street that AWS is falling behind."

Amazon's CEO responded that the AI field is "still in a very early stage," and the company's efforts to reduce the operating costs of AI applications will ultimately attract more customers. He reiterated that it takes time to build sufficient capacity to meet customer demand and added that finding adequate power supply for data centers is the biggest constraint on expanding cloud services.

Jassy emphasized that AWS has advantages in availability and security. "AWS's performance in security is distinctly different from other vendors," he mentioned while referring to "recent events"—Microsoft has recently faced multiple cybersecurity incidents and criticism from the U.S. government.

"We still hold a significant lead in this market," Jassy stated, "In any case, these are just moments in the river of time."

Amazon's stock price fell in after-hours trading following the earnings report and further declined during Jassy's remarks, dropping nearly 8% at one point. The stock closed at $234.11 in New York on Thursday, and as of the time of writing, it was down over 6% in after-hours trading. As of the close, the stock has gained 6.7% this year.

eMarketer analyst Sky Canaves stated in an email, "The wide range of the third-quarter operating profit guidance reveals a cautious attitude, indicating that, like the second quarter, ongoing trade negotiations and increasingly fierce competition in the AI field may still bring unexpected variables." Amazon's operating profit for the second quarter was $19.2 billion, exceeding analysts' average expectation of $17 billion. The financial report showed that total operating expenses for the quarter increased by 11% to $148.5 billion, with the total number of full-time and part-time employees growing by 1% compared to the same period last year, surpassing 1.54 million. Jassy is working to streamline the company's management hierarchy, reduce the ratio of middle managers to employees, and implement a five-day workweek, which he described as a necessary measure to strengthen the company's culture