Amazon.com stock dropped Friday after the tech giant posted second-quarter sales and earnings above expectations, but offered a mixed outlook. Amazon also appeared to struggle explaining why its cloud business, Amazon Web Services, wasn't doing as well as rivals as the age of AI takes off.
"Amazon had a mixed print and an even tougher conference call," RBC Capital analyst Brad Erickson wrote to clients late Thursday. "Positively, the retail business is firing on most if not all cylinders, and particularly so on big EBIT (earnings before interest and taxes) upside, where the margin expansion part of the bull thesis remains fully intact. On the other hand: AWS. Growth didn't really accelerate like peers, margins missed and management's commentary on the call did little to attenuate investor fears that AWS may have a bigger structural issue in capturing its fair share of the growth from AI.
Seattle-based Amazon late Thursday reported an adjusted $1.68 earnings per share for the June-ended quarter, up 33% from a year earlier. That easily beat the $1.33 per share that analysts polled by FactSet were forecasting. Sales increased 13% to $167.7 billion, compared to analyst estimates of $162.2 billion.
Amazon gave a stronger-than-expected sales forecast for the third-quarter, projecting $176.75 billion in Q3 revenue at the midpoint of its range. Analysts were looking for $173.27 billion, according to FactSet. However, Amazon guided for $18 billion in operating income for the September quarter, based on the midpoint. That came in below analyst estimates of $19.5 billion, according to FactSet.
On the stock market today, Amazon stock fell 8.3% to close at 214.75.
Amazon Cloud Letdown
Revenue for the closely-watched Amazon Web Services cloud business grew 17.5% to $30.87 billion in Q2. That beat analyst estimate but disappointed compared to the 39% growth for Microsoft Azure and 32% revenue jump by Google Cloud over the same period.
Chief Executive Andy Jassy was asked on a conference call with analysts Thursday about the "finance person narrative" that Amazon was falling behind in generative AI.
Jassy said its still "so early" for generative AI. He believes Amazon's cost advantages and large existing client base will benefit the company in the long run. But the commentary spooked investors, with Amazon stock trading off roughly 7% after-hours Thursday following the call, compared to about 2% going into the conference.
"The AWS backlog growth acceleration to 25% was a distinct positive, but the rest of the AWS results and commentary just did not address the market's concern that Amazon is 'missing' the AI cloud opportunity," Evercore ISI analyst Mark Mahaney wrote to clients late Thursday. He reiterated an outperform call for Amazon stock.
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Conservative Profit Outlook?
Meanwhile, this is the second consecutive quarterly report where Amazon stock was dragged down at least partially by the company's operating income guidance.
With its Q1 report in early May, Amazon gave a wider-than-expected range for second-quarter operating income of between $13 billion and $17.5 billion. Shares fell as the midpoint of that guidance missed estimates and inflamed fears that tariffs on imports would eat into Amazon's profits.
Ultimately, Amazon's Q2 operating income easily beat its guidance, coming in at $19.2 billion. The company was likely helped by the deal in May to ease tariffs on Chinese imports. But analysts noted that Amazon historically gives conservative guidance — and could be doing the same for the current period.
"We expect there is some conservatism embedded in management's outlook, as the company has outperformed the high end of its revenue and operating income guide for several consecutive quarters," Wedbush analyst Scott Devitt wrote Thursday.
Amazon Stock Up 7% Year To Date
Prior to earnings, Amazon gained 1.7% in regular trading. Strong results from cloud rival Microsoft Wednesday night raised expectations for Amazon.
As of Thursday's close, Amazon stock was up roughly 7% year to date, trailing a nearly 8% gain for the S&P 500.
Still, that was a vast improvement compared to earlier this spring. Amazon stock has bounced back from a steep spring slump with an 18% gain from May through June after the U.S. eased tariffs on Chinese goods.
Shares have edged higher in the weeks since Amazon stock broke out above a cup-with-handle buy point of 214.84 on June 9, as shown on IBD MarketSurge.
The IBD Stock Checkup tool, meanwhile, shows Amazon stock holds an IBD Composite Rating of 95 out of a best-possible 99. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
