Amazon (Minutes): The Capex investment intensity in the second half of the year can refer to 2Q

The following is$Amazon(AMZN.US) the Q2 2025 earnings call minutes, for earnings interpretation please refer to "AWS Shows No Improvement, Retail Has Concerns, Should Amazon First Crouch Before Jumping?"

I. Review of Core Financial Information:

1. Business Guidance: The company remains optimistic about future development, projecting Q3 net sales between $174 billion and $179.5 billion, with foreign exchange rate changes expected to provide approximately 130 basis points of favorable impact.

Operating profit for Q3 is expected to be between $15.5 billion and $20.5 billion. The company will continue to focus on enhancing customer experience, cost control, and technological innovation. Particularly in the field of artificial intelligence (AI), the company will continue to invest more funds in infrastructure such as chips, data centers, and electricity to seize this "exceptionally large" market opportunity. Currently, 85% to 90% of global IT spending is expected to reverse in 10 to 15 years, and enthusiasm for AI utilization will further accelerate this process.

2. Business Highlights Interpretation:

a. Store Business:

Price Advantage and Customer Savings: Amazon continues to maintain a low-price strategy, ensuring prices are affordable and competitive for customers. The global growth rate of Everyday Essentials surpasses other businesses, accounting for one-third of the total volume of goods sold. Renowned research firm Profitero has recognized Amazon for the eighth consecutive year as having the lowest online prices among all U.S. retailers. The recent Prime Day event set new records for sales, the number of goods sold, and Prime member registrations, saving customers billions of dollars.

Delivery Service Optimization: The company continues to make progress in delivery services. Q2 set a global speed record for delivering to Prime members at the fastest pace ever. In the U.S., the number of items delivered same-day or next-day increased by 30% compared to the same period last year. The company plans to expand Same-Day and Next-Day Delivery services to tens of millions of customers in over 4,000 small cities, towns, and rural communities in the U.S. by the end of the year, currently available in over 1,000 such communities.

U.S. Inventory Network Restructuring: The company has restructured the U.S. inventory network into a regional structure, yielding significant results. By optimizing the network, inventory can be closer to customers, improving delivery speed and reducing costs. In Q2, the share of orders through direct routes (packages sent directly from distribution centers without additional stops) increased by over 40% year-over-year. Additionally, the average transportation distance of packages shortened by 12%, and the number of handling times per item decreased by nearly 15%.

Cost Control Measures: The company is committed to further improving its cost structure. The optimized warehousing network brings multiple benefits, including better inventory availability, shorter delivery routes, and faster customer delivery times. By optimizing inventory locations, the company can consolidate more items into each package, reducing packaging materials and costs. The global fulfillment network has deployed the 1 millionth robot. DeepFleet (AI system) has increased robot efficiency by 10%, making the network faster and structurally more efficient. Q2 transportation costs increased by 6% year-over-year, while unit growth increased by 12% year-over-year, indicating improved transportation efficiency.

b. Advertising Business:

This quarter, advertising revenue grew strongly to $15.7 billion, up 22% year-over-year. This growth was primarily driven by Sponsored Products, with strong traffic observed in the store business. The extensive "full-funnel advertising" product portfolio continues to maintain strong momentum, helping advertisers reach an average audience of over 300 million ad-supported viewers in the U.S. alone. Amazon DSP (Demand Side Platform) enables advertisers to plan, activate, and measure their investments. The company also announced a partnership with Roku, allowing advertisers exclusive access to 80 million Connected TV households through Amazon DSP.

c. AWS Business:

Business Growth and Future Outlook: In Q2, AWS business grew by 17.5%, with an annualized revenue run rate exceeding $123 billion. The company continues to help organizations of all sizes accelerate their cloud transformation, signing new AWS agreements with companies like PepsiCo, Airbnb, and Peloton. In the rapidly developing field of generative AI, AWS is building a large, fast-growing (triple-digit percentage growth year-over-year), multi-billion-dollar business, with demand exceeding supply.

Chip Development and Advantages: In hardware, Amazon's custom AI chip Trainium2 is providing greater capacity and has become the backbone of many core products, including Anthropic's latest Claude model and Amazon Bedrock. Additionally, AWS has launched Amazon EC2 instances powered by NVIDIA Grace Blackwell Superchips, AWS's most powerful NVIDIA GPU-accelerated instances. The company will continue to invest more funds in chip development.

Model Building Services: In Bedrock, Anthropic's Claude 4 has recently been added, becoming the fastest-growing model in Bedrock. Amazon Nova, as the company's leading model family, has strong adoption and is now the second most popular foundational model in Bedrock. Nova's new features allow customers to customize their Nova models in ways not possible with other foundational models, optimizing cost and speed.

Generative AI Applications: In generative AI applications, AWS continues to build a large, fast-growing business. In addition to the newly added Claude 4 and popular Amazon Nova models in Bedrock, the company has released Strands, an easier way to build Agents, which has been widely welcomed, receiving 2,500 Stars on GitHub and over 300,000 downloads on PyPI.

Software Development Assistant AWSAgent: Transform is an AWS Agent that can significantly shorten host modernization time from years to months and increase VMware to EC2 conversion speed by 80 times. Additionally, the company has just released Kiro, a new Agentic integrated development environment coding Agent. Kiro had tens of thousands of developers using or requesting access before its release, with 100,000 users in the first five days of the preview release. Kiro allows developers to use natural language for Vibe Coding.

d. Other Important Businesses:

Alexa+ User Progress: The company has begun offering early access to the next-generation assistant Alexa+, powered by generative AI, to millions of U.S. customers.

Project Kuiper Launch Progress: The company recently completed the third successful launch of Project Kuiper, and although not yet commercialized, numerous enterprise and government customers have signed agreements to use Kuiper.

Prime Video Live Sports: Prime Video's first NASCAR season attracted approximately 2 million viewers per race and is the youngest audience among NASCAR broadcasters in over a decade.

Amazon Pharmacy Growth: Amazon Pharmacy's growth and impact continue to be strong, with a 50% year-over-year increase on an already substantial base.

3. Earnings Data Interpretation:

a. AWS Operating Profit: AWS operating income was $10.2 billion. AWS division profit margin decreased from a record 39.5% in Q1 to 32.9%. The largest driver of the quarter-over-quarter decline, or about half, was due to the timing of the annual compensation cycle leading to a seasonal increase in equity incentive expenses. Additionally, profit margins were impacted by increased depreciation expenses and unfavorable foreign exchange rate fluctuations year-over-year.

b. Capex Investment: Q2 cash capital expenditure was $31.4 billion. The company expects Q2 capital expenditure to reasonably represent the quarterly capital investment rate for the second half of the year. AWS remains the primary driver, with investments to support AI service demand and increasing investments in custom chips like Trainium, as well as supporting technology infrastructure for North American and international divisions.

Additionally, the company continues to invest in fulfillment and transportation networks to support business growth, improve delivery speed, and reduce service costs through investments in Same-Day Delivery facilities and Robotics and Automation.

II. Earnings Call Q&A Analyst Questions and Answers

Q: Can you elaborate on the tariff sharing mechanism between suppliers, Amazon, and consumers, and does the company anticipate any changes in the future?

A: The company is currently unable to precisely predict the future direction of tariffs, especially the specific implementation details in the Chinese market. He noted that it is difficult to determine how the situation will evolve once the inventory of goods pre-purchased for the first-party retail business and pre-deployed by third-party sales partners is exhausted. More importantly, if tariffs lead to rising costs over time, the company is currently uncertain whether these additional costs will ultimately be borne by suppliers, Amazon itself, or consumers. However, it can be shared that based on observations from the first half of the year, market demand has not shown a significant decline, and average selling prices (ASP) have not seen a large-scale increase. Although the first half of the year remained relatively stable, this situation may change in the second half. The company acknowledges that there are still many uncertainties regarding the future impact of tariffs but will continue to monitor and adjust based on market feedback to address potential cost sharing and market reactions.

Q: Regarding AWS business, considering the significant acceleration in cloud growth by the second and third largest players in the field, despite AWS's large business base, do you believe the current output gap is more due to customer demand, infrastructure supply, or a combination of both?

A: Year-over-year percentages and growth rates are always related to the business base, and AWS's business scale is significantly larger than other competitors, with the second-largest player being about 65% of AWS's size. Although competitors have sometimes grown faster than AWS in recent quarters, AWS still maintains a significant market leadership position. He emphasized that what truly matters is the customer experience when using these platforms, especially operational performance, availability, durability, latency, and throughput of various services, where AWS has considerable advantages.

Security is also a key factor, with AWS performing excellently in security, unlike other participants who frequently encounter issues. Additionally, AWS has significant differences in functionality, not only having more features in core infrastructure but also standing out in end-to-end AI products. Currently, AWS faces a situation where demand exceeds supply, and the company is working hard to increase capacity to meet customer demand and generate more revenue. Although AWS is already a $123 billion annualized revenue business, it is still in its early stages, which is a very unusual and opportunity-filled field, and the company is very optimistic about it.

Q: Can you disclose the backlog order quantity for AWS? Given the previous mention of supply constraints and the expectation to resolve them in the second half of the year, does this intention remain unchanged? Are there any signs that the resolution time for supply constraints will be advanced or delayed?

A: As of the end of this quarter, June 30, the total backlog order amount reached $195 billion, growing approximately 25% year-over-year. Currently, AWS's demand still exceeds supply. These constraints are reflected in multiple aspects, with the largest single constraint being power supply. Additionally, the supply of chips and certain key components is occasionally limited, including delays in the delivery of new-generation chips, or lower-than-expected yield rates during server production. The company is actively addressing these industry-wide issues but expects that the gap between required capacity and current demand will not be fully resolved in the coming quarters. He believes it will take several quarters to gradually improve, but is optimistic that each quarter will see improvement.

Q: Regarding the long-term development of Alexa+, considering its potential to enhance user engagement, potential service revenue, advertising revenue, and possibly increase retail sales (per household sales) by reducing friction, how do you view its development from a financial perspective, and how might we observe these impacts in the data?

A: Alexa+ offers a significantly improved user experience compared to previous versions of Alexa, being smarter and more capable. Unlike traditional chatbots that are only good at answering questions, Alexa+ can perform multiple practical operations, making it highly attractive. For example, through natural language commands, it can achieve music playback, video on demand, device linkage, and even complex multi-device smart home scene control. Alexa+ has been launched in the U.S., covering millions of customers, and plans to complete the U.S. market rollout in the coming months, followed by international expansion later this year. Customer feedback is positive, with high ratings, and usage range and call numbers have significantly increased.

Alexa+ is expected to bring benefits in multiple areas. Firstly, as a highly practical personal assistant, its widespread use will drive sales of Alexa+ compatible devices. Secondly, it will provide a more convenient shopping experience, likely continuously improving and promoting retail sales growth. As user interaction deepens, the advertising business will have opportunities to drive revenue growth through product discovery. Additionally, the company envisions introducing some form of subscription model as functionality increases; currently, Prime members use it for free, while non-Prime members pay $19.99 per month. Although Alexa+ is still in a very early stage, the company is confident in its experience and committed to continuous iteration and optimization.

Q: How is the progress of the international division in terms of revenue and profit? Can you provide background information on the driving factors and explain the sustainability of these market efficiency improvements?

A: The international division has shown strong performance in revenue growth and operating profit margin. Operating profit margin increased by 320 basis points year-over-year, reaching 4.1%, continuing the steady progress of the past 10 quarters, with cumulative growth of nearly 700 basis points during this period. This performance benefits from two main parts of the international business. Firstly, mature markets such as the UK, Germany, and Japan, where profit levels are similar to those in the U.S. These markets continue to grow and gradually increase their contribution to total profits.

This quarter, these mature markets achieved significant productivity improvements in the transportation network, similar to what was seen in the U.S. market, facilitating an increase in the number of items per package, faster delivery speeds, and reduced costs. The themes of reducing service costs, improving delivery speed, and optimizing product selection continue to advance globally.

Secondly, emerging markets, where the company is satisfied with the progress made. Over the past five years, Amazon has launched operations in eight countries, and these markets are at different stages of early investment and profitability. They have achieved significant improvements quarter by quarter in increasing product selection, expanding Prime membership, and expanding customer products. The company is very satisfied with the continued growth in mature countries and the ongoing improvements in emerging markets at different stages of development.

Q: Regarding Project Kuiper, due to limited recent information, can you review its release target for next year, service launch timeline, and your view on the long-term goals of this satellite network?

A: Project Kuiper is a low Earth orbit satellite constellation being launched by Amazon, aimed at addressing the digital divide of 400 to 500 million households lacking broadband connectivity globally, as well as meeting the connectivity needs of enterprises and governments in remote areas. Once the constellation is deployed, the market will primarily feature two participants with modern low Earth orbit satellite technology.

The existing market leader and Project Kuiper. Project Kuiper is expected to achieve significant differentiation in performance, particularly in uplink and downlink capabilities, and offer attractive pricing to customers. Given Amazon's consumer and AWS business, the company has established strong relationships with the three major customer groups: consumers, enterprises, and governments.

Project Kuiper's seamless connection with AWS is especially beneficial for enterprises and governments, as it facilitates the integration of space data with cloud services for analysis and AI. Although not yet officially launched, the number of enterprise and government agreements signed for Project Kuiper is impressive. Despite some delays on the rocket supplier side, Amazon has secured most launch opportunities for the coming years. The company is very optimistic about the possibility of commercial beta testing of the service later this year or early next year.

Q: There are voices on Wall Street suggesting AWS is falling behind in generative AI (GenAI) and concerns about market share loss. How do you respond or refute this? What is your team's most important focus in ensuring AWS remains ahead in innovation with hyperscale competitors?

A: The AI field is still in a very early stage. He noted that current activities are concentrated on a few leading-edge models, some of which are being trained on AWS, and many generative AI applications and Agents are still in early development stages. Mr. Jassy emphasized that the key to ensuring AWS remains ahead is focusing on different layers of the AI stack. He pointed out that when scaling up in the future, 80% to 90% of costs will be concentrated on inference rather than training. AWS provides superior cost-effectiveness to customers through deep collaboration with NVIDIA and the development of custom chips like Trainium2, which has become the foundation for Anthropic's next-generation Claude model and AWS Bedrock inference. At the service layer, AWS offers services like SageMaker AI and Bedrock to support customers in building and utilizing leading-edge models. To simplify the construction and deployment of AI Agents, AWS has launched Strands and AgentCore, receiving positive feedback. Additionally, Mr. Jassy pointed out that 85% to 90% of global IT spending is still on-premises, presenting a huge cloud migration opportunity, and AWS assists traditional infrastructure migration through Agent tools. He is optimistic that as AI applications scale up, AWS will perform well in the AI field, leveraging the advantage of customer data and existing applications mostly residing on its platform, and offering a unique end-to-end service suite.

Q: Despite the large scale of AWS business, given the enormous opportunities it contains and the numerous generative AI features set to launch in the next 12 months, is there reason to expect this business to accelerate growth in the second half and 2026?

A: The company does not provide guidance at the departmental level, so specific growth forecasts cannot be provided. However, we express optimism about the prospects of AWS business, based on several combined factors. Firstly, more and more enterprises are resuming their infrastructure modernization processes, migrating their businesses from on-premises environments to the cloud. Secondly, the accelerated development of AI technology will prompt more companies to put AI applications into production and achieve scale. Finally, it is expected that AWS's capacity will significantly increase in the coming months and quarters. All these factors combined give confidence in the future development of AWS business.

Q: You mentioned the potential of generative AI Agents to improve efficiency and speed to market within the company. How is Amazon internally adopting generative AI, and how do you expect this to accelerate product launches?

A: AI is the biggest technological change in the company's lifetime, with an impact that will surpass the internet, mobile, and cloud computing. He believes AI will not only reshape customer experience but also profoundly change almost every work area, including coding, analysis, research, finance, business process automation, and customer service. Faced with this transformation, the company chooses to fully embrace and actively shape technological development rather than passively accept it. He has clearly communicated this strategic direction to the team.

The company has actively built numerous AI tools and Agents internally, such as Kiro and Agents for coding. These tools are expected to allow team members to start from a more advanced point, enabling faster and broader innovation for customers. For example, enhancing call center agent productivity through built-in AI services like AWS Connect, and simplifying software releases, high-quality software construction, and business process automation. The main goal is to accelerate and expand the ability to innovate for customers while making team members' work more enjoyable, reducing tedious tasks, and giving them deeper end-to-end ownership.

Q: How is the company's revenue guidance situation? The guidance for Q3 growth is strong, can you elaborate on the main driving factors, and does it consider tariffs and other contingency measures? Additionally, what is your outlook for Q4?

A: This quarter's revenue is expected to be between $174 billion and $179.5 billion. Satisfaction was expressed with the growth rate for Q2 and acceleration in multiple areas, including unit growth, and the successful Prime Day held earlier this month was mentioned. Regarding tariffs, there is still uncertainty about their final determination and potential impact on consumers, as previously mentioned. However, the company is very satisfied with the key inputs it can control—price, product selection, and convenience. Recent discussions have covered improvements in delivery speed, increased product selection, high inventory levels, and well-distributed inventory close to customers. Mr. Olsavsky believes all these factors are favorable to the company. Therefore, he expressed cautious optimism. Currently, no guidance can be provided for Q4, but it will be discussed in the next meeting.

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