Amazon’s AI investment plan disappoints investors, drops shares 7%

Amazon's recent decision to prioritize heavy spending on artificial intelligence over immediate profits has led to a drop in its stock prices. The company projected lower-than-expected operating income for the current quarter, causing shares to fall 7%. CEO Andy Jassy aims to capitalize on the generative AI boom, despite investor impatience. Amazon's strong AWS performance contrasts with weaker e-commerce results, highlighting shifting business dynamics and ongoing investments..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Join us for BizNews' first investment-focused conference on Thursday, 12 September, in Hermanus, featuring top experts like Frans Cronje, Piet Viljoen, and more. Get insights on electricity and exploiting SA's gas bounty from new and familiar faces. Register here..By Spencer Soper.Amazon.com Inc., risking Wall Street's displeasure, told investors that profits for now will take a back seat to heavy spending on artificial intelligence. .___STEADY_PAYWALL___.The shares fell after the company projected operating income for the current quarter will be $11.5 billion to $15 billion in the period ending in September. Analysts, on average, were looking for $15.7 billion..After focusing on cost-cutting during the past two years, Chief Executive Officer Andy Jassy is spending in an effort to capitalize on the boom in generative AI, which can create text, video and images based on simple user prompts. Amazon has said the opportunity represents a "multibillion-dollar revenue run rate business.".The decision to spend in the short term to take advantage of long-term growth opportunities has been embedded in Amazon's DNA since Jeff Bezos started the company 30 years ago. Investors aren't usually enamored of that behavior.."Amazon has always had spurts of investment at the expense of short-term margins, and it appears they are planning a spurt into the rest of the year," said Gil Luria, an analyst at DA Davidson. .Read more: From Cape Town to the cloud: The South African roots of Amazon Web Services."The good news," Luria said, is much of the money is going toward the Amazon Web Services cloud unit that produced 19% sales growth in the second quarter — more than analysts' projected..During a briefing with reporters after the company announced second-quarter results on Thursday, Chief Financial Officer Brian Olsavsky said Amazon spent $30.5 billion on capital expenditures in the first half of the year. That includes money for data centers required to power AWS. Then he pledged to spend even more in the second half. ."We see strong demand in generative AI and nongenerative AI workloads," Olsavsky said. .The shares declined about 7% in extended trading after closing at $184.07 in New York. The stock had gained 21% this year. In recent weeks, investors have signaled growing impatience with tech companies' efforts to profit from their massive investments in AI. .Microsoft Corp. on Tuesday posted slowing growth in its Azure cloud-computing arm and said it expected to keep spending heavily on data centers. The next day Meta Platforms Inc. reported upbeat earnings that were expected to buy it time for its AI investments to pay off. Last week, Alphabet Inc. shares sank after it surprised Wall Street with sharply higher costs that overshadowed better-than-expected quarterly sales..Amazon also provided conservative revenue guidance for the third quarter. Sales will grow between 8% and 11% to as much as $158.5 billion, the company said in a statement. Analysts estimated $158.4 billion on average..Read more: BizNuus: Van Kaapstad tot by die kuiberruim – Die Suid-Afrikaanse wortels van Amazon Web Services.Referring to the revenue outlook, Olsavsky said the company is "seeing cautious consumers looking for deals." Big news events, including the Olympics, appear to have interrupted normal purchasing patterns in the current quarter, making it more difficult to forecast sales, he added..The cloud business, which suffered record low sales growth last year, continued to stage a comeback during the second quarter. AWS revenue jumped 19% to $26.3 billion, beating estimates, and posting the second consecutive period of quarter-over-quarter growth..Total revenue increased 10% to $148 billion in the period ended June 30, compared with analysts' average estimate of $148.8 billion. Seattle-based Amazon posted an operating profit of $14.7 billion. Analysts, on average, projected about $13.6 billion, according to data compiled by Bloomberg..Amazon's operating expenses increased 5.2% to $133.3 billion, less than Wall Street projections. The company's workforce increased 5% to more than 1.53 million people. .The strong cloud computing performance was offset by weakness in Amazon's main e-commerce business. Revenue from Amazon's seller services and advertising both fell short of estimates..Sky Canaves, an EMarketer Inc. analyst, cited "softer consumer spending" at the online business in the quarter, which fell between major sales in March and July.."Amazon will have to position its offerings and promotions to take advantage of these trends, such as with the reported plans to launch a Temu-like discount section in time for the holidays this year," she said..Read also:.🔒 Jeff Bezos to sell $5bn in Amazon shares as stock hits record prices🔒 The Economist analyses Amazon.com – looking ahead from its 30 year birthdayAmazon launches its online shopping service in South Africa.© 2024 Bloomberg L.P.

Amazon’s AI investment plan disappoints investors, drops shares 7%

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