Amazon's Second Quarter Earnings: A Close Look at AWS Sales and AI Spending

Stock Market01/08/2024Mr. SmithMr. Smith
Amazon
Amazon

Amazon (AMZN) is set to release its second-quarter earnings report after the market closes on Thursday. This report will conclude a series of Big Tech earnings that have shown investors’ limited patience for significant AI spending.

Key Metrics and Expectations

The company is expected to provide updates on the progress of its AI initiatives, the growth of its lucrative cloud business, and the development of its advertising segment.

Here are some of the key metrics Wall Street is anticipating for Amazon's fiscal second quarter:

  • Revenue: $148.8 billion expected (compared to $134.4 billion in Q2 2023)
  • Adjusted earnings per share: $1.04 expected (compared to $0.65 in Q2 2023)
  • Amazon Web Services (AWS): $26 billion expected (compared to $22.1 billion in Q2 2023)
  • Advertising: $13 billion expected (compared to $10.7 billion in Q2 2023)

Amazon Web Services and AI Investments

Amazon's CFO Brian Olsavsky noted last quarter that capital expenditures are expected to "meaningfully" increase this year from nearly $50 billion in 2023. This rise is driven by higher infrastructure costs to support growth in AWS.

Amazon sees potential for its AI initiatives to generate substantial revenue for its cloud business. Customers are signing up for longer AWS contracts with larger commitments, many of which include generative AI components. The company's significant position in the cloud industry, claiming about 30% of market share, places it in a strong position to benefit from the AI transition.

Advertising Growth and E-commerce Competition

Last quarter, Amazon's advertising revenue grew by 24%, and AWS sales increased by 16%. Both segments are expected to continue growing at double-digit percentages. The company's advertising segment, driven by Prime Video ads and Prime Day benefits, is also expected to boost revenue.

On the e-commerce front, Amazon faces increasing competition from companies like Temu and Shein, which specialize in low-cost goods with direct-from-factory supply chains. Amazon is reportedly developing a low-cost digital storefront to compete in the fashion and lifestyle market. Updates on these efforts might be included in the earnings report.

Market Reactions and Economic Impact

Amazon's earnings report arrives just after the Federal Reserve's July policy meeting, where officials kept interest rates unchanged but indicated a possible cut in September. The timing of an eventual easing cycle will impact Amazon and other major tech stocks, which have been significant drivers of 2024's equity rally.

Investors are also keenly watching for a potential dividend announcement. Amazon remains the only major Big Tech company that does not offer a dividend, unlike Meta, Alphabet, and Apple, which have recently expanded their shareholder return programs.

In conclusion, Amazon's second-quarter earnings report is highly anticipated for insights into its AI and cloud strategies, advertising growth, and competitive stance in the e-commerce sector. The market's reaction to these updates will be crucial in determining the company's short-term financial trajectory.

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