(Bloomberg) --Amazon.com Inc. projected profit that missed analysts’ estimates, ramping up its spending to meet demand for artificial intelligence services. The shares dropped in late trading.
Operating income will be US$11.5 billion to $15 billion in the period ending in September, the company said Thursday in a statement. Analysts, on average, projected $15.7 billion. Third-quarter sales will be $154 billion to $158.5 billion, or to grow between 8% and 11%, compared with an average estimate of $158.4 billion.
Chief Executive Officer Andy Jassy has been cutting costs and focusing on profitability in Amazon’s main online retail business while spending heavily on AI services, which the company has said represent a “multibillion-dollar revenue run rate business.”
Chief Financial Officer Brian Olsavsky said Amazon spent $35 billion on capital expenditures such as data centers for its Amazon Web Services cloud unit in first half of year, and will increase that amount in the second half. “We see strong demand in generative AI and nongenerative AI workloads,” he said in a briefing with reporters.
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.
Olsavasky, speaking about the revenue outlook, 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.
Still, second-quarter revenue at AWS jumped 19% to $26.3 billion, beating estimates, and the second consecutive period of quarter-over-quarter growth. 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.
“Investors were starting to get acclimated to more consistent profitability in the retail business, but 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. “The good news is that the payback seems to be there with the acceleration of (AWS) growth to 19%.”
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.
Sky Canaves, an analyst at Emarketer, pointed toward “softer consumer spending” for Amazon’s online business in the quarter, which came between major sales in March and July.
“Healthy consumer spending during these events indicates more strategic and deal-hunting shopping behavior,” Canaves said. “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.”
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 shares declined about 5% in extended trading after closing at $184.07 in New York. The stock had increased 21% this year through the close.
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