Tech Spending Spree Backfires for Amazon
Amazon (AMZN) stock plunged as much as 6% in after-hours trading Thursday, revealing investor anxieties about the tech giant’s future trajectory. While the company reported earnings per share (EPS) of $1.26, exceeding analyst expectations of $1.04, a weaker-than-anticipated sales forecast overshadowed the positive EPS news.
Shortfall in Sales Guidance Spooks Investors
Amazon projected third-quarter sales between $154 billion and $158.5 billion, falling short of analyst estimates of $158.43 billion according to Bloomberg data. This shortfall aligns with a broader trend across the Big Tech landscape, where aggressive investments in artificial intelligence (AI) are testing investor patience. Wall Street appears less forgiving of any weakness in core businesses when faced with massive AI spending.
Despite exceeding analyst expectations for EPS and nearly doubling profits from the same period last year, investors honed in on the report’s softer topline figures. Overall revenue of $148 billion fell slightly below the anticipated $148.8 billion. Similarly, even the company’s booming advertising segment, which boasts a history of double-digit percentage growth, missed expectations by generating $12.8 billion in revenue compared to projected $13 billion.
AWS Remains a Bright Spot
A beacon of strength emerged from Amazon Web Services (AWS), the company’s cloud computing arm. AWS surpassed analyst expectations by raking in $26.3 billion in revenue – well above the $22.1 billion reported during the same period last year. CFO Brian Olsavsky expressed confidence in AWS’s future, projecting annual revenue exceeding $105 billion. This growth aligns with Amazon’s significant capital expenditures, exceeding $30 billion in the first half of the year, primarily fueled by expanding AWS services and the rising demand for generative AI tools. Olsavsky anticipates these investments to climb further in the latter half of 2024.
Amazon’s core e-commerce business faces intensifying competition from companies like Temu and Shein, who have carved a niche in low-cost, direct-from-factory goods. Olsavsky acknowledged this challenge, noting “cautious consumers” seeking deals. Analyst Sky Canaves of eMarketer attributes Amazon’s softer topline growth to “softer consumer spending in a quarter sandwiched between two major sales events.” Canaves anticipates a potential discount digital storefront launch from Amazon to directly compete with Temu and Shein during the upcoming holiday season.
Big Tech Struggles: A Pattern Emerges
Amazon’s report comes on the heels of a similar pattern exhibited by its Big Tech peers. Just days prior, cloud rival and AI competitor Microsoft (MSFT) beat overall expectations yet missed cloud revenue estimates, leading to a stock price decline. Similarly, Google parent Alphabet (GOOG, GOOGL) disappointed investors with lower-than-expected YouTube ad revenue. Meta (META) however, stood as a bright spot, exceeding revenue and profit projections despite warnings of “significant” capital expenditures in 2025. Apple (AAPL) also managed to beat analyst expectations on revenue and earnings, despite a year-over-year decline in iPhone sales.
