Amazon – Beats Expectations, $100m Generative AI Investment Announced  

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  • Second quarter net sales of $134.4bn far ahead of expectations of $131.5bn as retail and AWS sales rise
  • AWS profits dip to $5.4bn from $5.7bn last year, North America retail back in profit after $600m losses
  • $100m being invested in AWS Generative AI Innovation Center – which will “connect AWS AI and machine learning experts with customers around the globe to help them envision, design, and launch new generative AI products, services, and processes”
  • Shares rise 6.4% in after-hours trading

Another Earnings Beat For Amazon, Inc. (NASDAQ:AMZN) has come out swinging this quarter in another beat for this earnings season. As expected, continued AI excitement has shown up in the numbers in a big way, with AWS once again accounting for the bulk of profits, despite a normalisation of trends.  

The potential is huge. By some estimations, AWS is worth multiple times Amazon’s current market cap. The possibility of this value being realised will rise as companies increasingly harness new technologies and infrastructure, where AWS products are poised and waiting to be adopted.

While there are some grumblings about the likelihood of a sustained reacceleration in AWS and the timing of these favourable value dynamics, Amazon bulls will argue that while AWS doesn’t immediately benefit from booming demand for models like OpenAI, it does stand to gain from other apps using things like Stability AI, the deep learning, text-to-image model. Ultimately, AWS’ position in the AI and cloud stack is a positive one, and the $100m investment announced in AWS’ generative AI products speaks volumes to the expected pipeline of demand.

Of course, the core retail operation can’t be ignored, and while progress has been swift with losses narrowing in the international business, and profit returning to North America, the challenges haven’t evaporated. The weakening consumer environment is having an impact on people’s willingness to spend, and this could get worse before it gets better – with the full pain of monetary tightening yet to filter down. With US core inflation still at stubbornly high levels, finding ways to keep the support beams under retail profits from buckling could be a tough ask.”

Article by Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown