Amazon (AMZN) slumped in late trading on Thursday after setting the stage for massive AI spending this year.
The Seattle-based e-commerce giant reported revenue was up 14% year-over-year to $213.4B, vs. $211.5B consensus. The cloud business was strong again as AWS revenue rose 24% to $35.6B. The headliner was the $200B in capex spending that Amazon (AMZN) expects for the full year.
During the earnings conference call, Amazon (AMZN) CEO Andy Jassy broke down how the company expects the capex spending on AI, chips, robotics, and low earth orbit satellites to generate strong long-term ROIC. Jassy said AWS momentum is accelerating as it continues to pick up huge corporate and government contracts. Notably, AWS was said to be picking up AI model market share as well through Bedrock. Jassy said the company is monetizing AI demand as quickly as it can.
On Seeking Alpha, Jonathan Weber, Investing Group Leader for Cash Flow Club, highlighted that Amazon’s (AMZN) revenue growth was better than expected and called the growth outlook for the current quarter appealing as well. “Margins for AWS were down slightly versus one year earlier, which isn’t a good development — likely one of the factors that caused a price pullback in after-hours trading,” he noted. “With AMZN trading at 30x net profits, it looks relatively reasonably valued, considering its nice business growth but somewhat uncertain profit outlook,” added Weber.
Meanwhile, Seeking Alpha analyst Grassroots Trading described the stock sell-off as a potential knee-jerk reaction as investors process cash flow and spending. “Specifically, AWS grew 24% compared to last year, and operating income increased to $25B. However, free cash flow cratered to $11.2B from $38.2B, the predictable result of Amazon shoveling money into AI capex,” read the earnings breakdown. Investors seem less concerned about how much Amazon made this quarter and more worried about how long this higher level of spending will weigh on returns in the near term, warned Grassroots Trading.
Shares of Amazon (AMZN) were down 10.1% in postmarket trading.