Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Amazon beat Wall Street forecasts for artificial intelligence-fuelled cloud computing growth on Thursday, though margins at the company’s closely watched segment narrowed as it reported a jump in capital spending.
Sales at the Seattle-based company’s cloud division, Amazon Web Services, rose 19 per cent in the three months to June 30 to $26.3bn, compared with analysts’ forecasts for sales of $26bn.
However, margins at the unit, which is a core driver of the ecommerce group’s profits, narrowed 2 percentage points to 36 per cent, as Amazon reported a 50 per cent increase in company-wide capital spending to $17.6bn during the quarter compared with the same period last year. That spending was for its logistics network and the infrastructure underpinning AI, such as data centres and chips.
Amazon also said operating income for the third quarter would be between $11.5bn to $15bn, below analysts’ expectations for $15.1bn.
Big Tech groups including Amazon and rivals Microsoft and Google parent Alphabet have come under intense scrutiny from investors looking for evidence that the massive investments being poured into AI technology and infrastructure are starting to pay off.
Amazon in May said its capital expenditures would grow “meaningfully” this year. This week, Microsoft also unveiled a surge in quarterly capital spending designed to support the build out of AI infrastructure in order to meet growing demand that the company said was outstripping its capacity.
Although Amazon has not broken out the contribution from generative AI to its AWS sales, the company in May said the technology had grown into “a multibillion-dollar revenue run-rate business for us.”
“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” said chief executive Andy Jassy on Thursday.
The group has sought in recent quarters to cut costs and boost margins across its vast empire that spans ecommerce, healthcare, video streaming and more. That has included a reorganisation of its sprawling North American logistics business designed to locate goods closer to customers in order to reduce delivery times, cut costs and improve margins.
It has also tried to grow its ads business, which largely comprises promotions on its ecommerce websites, and launched an ad-supported tier on its Prime Video streaming service this year.
Amazon’s advertising sales jumped 20 per cent to $12.8bn in the three months to June, though that was a slower pace to the 24 per cent rise recorded in the previous quarter.
JPMorgan analysts in June said advertising was “Amazon’s fastest-growing revenue stream and also one of its highest-margin businesses”.
Net sales across the group rose 10 per cent to $148bn, missing analysts’ estimates for $148.6bn.
Net income for the three months to June increased to $13.5bn, well ahead of analysts’ forecasts for $11bn.
Shares in Amazon, which have risen more than a third in the past 12 months, slipped 6 per cent in after-hours trading in New York.
Read the full article here