Amazon Results Beat Expectations, Sales Forecasts Miss By Reuters

Written by Greg Bensinger and Yuvraj Malik

(Reuters) – Amazon.com reported quarterly earnings that topped Wall Street expectations on Tuesday as interest in artificial intelligence helped fuel cloud computing growth.

For Amazon (NASDAQ:), “there’s a huge opportunity ahead of us” in AI customer service, CEO Andy Jassy told analysts.

Shares of the Seattle-based e-commerce and technology company rose less than 2% in extended trading after its current quarter revenue forecast missed expectations. The stock price fell 3.3% at the regular meeting.

Capital spending will increase throughout the year, compared to $14 billion in the first quarter, Chief Financial Officer Brian Olsavsky said on a call with reporters. “This will be the lowest point of the year in terms of quarterly capital expenditures,” he said.

“A lot of it is AWS infrastructure, especially supporting generative AI efforts,” he said later on a call with analysts. Amazon is making proactive investments to build AI products to meet customer demand, especially as customers seek long-term contracts, he said.

Amazon is racing to catch up with its competitors in providing generative AI software. Competitors include Alphabet (NASDAQ:) and Microsoft-backed OpenAI.

Sales in the first quarter rose 13% to $143.3 billion, compared with an average of $142.5 billion, according to LSEG data. Net profit in the first quarter more than tripled to $10.4 billion.

The company expects revenue of $144 billion to $149 billion for the quarter ending in June, compared with analysts’ expectations of $150.07 billion, according to LSEG data.

“After a year and a half of reducing cloud costs, enterprise customers appear ready to move more of their workflows back to the cloud, which is positive not only for Amazon, but for many software companies that sell to enterprise customers.” DA Davidson analyst Gil Luria.

Amazon Web Services (AWS), the largest cloud computing service provider, reported first-quarter revenue of $25 billion, up 17%, compared to expectations of $24.53 billion.

This compares to a 31% increase in cloud computing revenue for Microsoft (NASDAQ:) over the January-March period and a 28% increase for Alphabet.

AI has been a fixture in Silicon Valley since the launch of OpenAI’s ChatGPT in late 2022, attracting billions of dollars in funding and a frenzy to roll out chatbots and other artificial intelligence features into more products. On Tuesday, Amazon said its “Q” chatbot for businesses was publicly available, and earlier this year it launched the Rufus service to help customers discover new products on its website.

Jassy said in a statement that AWS is currently on pace to achieve $100 billion in annual revenue.

Amazon bucks the trend of big tech announcing dividends after rivals Alphabet and Metaplatform (NASDAQ:) announced investor benefits. The latter two announcements were cheered by investors, sending the stock higher.

Amazon and Tesla (NASDAQ:) remain the only members of the so-called Magnificent Seven tech stocks that don’t offer dividends. In 2024, the stock price rose about 15%, surpassing the ‘about 6% rise’.

Net income was $10.4 billion, or 98 cents per diluted share, compared to $3.2 billion, or 31 cents per diluted share, in the first quarter of 2023. This beat analysts’ average EPS estimate of 83 cents.

Amazon’s efforts to expand its advertising business helped its performance this quarter. The company’s advertising revenue was $11.8 billion, up 24% from the previous year. This year, the company added non-skippable ads to its Prime Video streaming service, which Jassy said marketers really like. Customers can opt out for $2.99 ​​per month.

The company ended the quarter with 1.52 million employees, about 4,000 fewer than at year-end 2023 but 56,000 more than a year ago. This is despite Amazon laying off at least 27,000 employees last year and continuing to cut staff across several departments.