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Investing.com -- Amazon.com reported better-than-expected second-quarter earnings and revenue, bolstered by e-commerce strength and advertising, but shares slipped by more than 7% in premarket U.S. trading on Friday as operating margins at the group’s key cloud computing unit fell short of investor hopes.
The company reported earnings per share of $1.68, beating the average analyst estimate of $1.32. Revenue at the latest member of the so-called "Magnificent Seven" club of mega-cap tech names rose 11% year-over-year to $167.7 billion, ahead of expectations for $162.05 billion.
Amazon (NASDAQ:AMZN) Web Services, its crucial cloud computing division, delivered sales of $30.9 billion, up 17.5% from a year earlier. While slightly above consensus expectations for 17% growth, concerns remain that AWS may have lost more market share than expected to rival divisions at Microsoft and Google (NASDAQ:GOOGL), said Gene Munster, Managing Partner of Deepwater Asset Management, in a post on X.
Analysts at Vital Knowledge also flagged that operating margins at AWS of 32.9% for the quarter were below expectations.
Still, CEO Andy Jassy told analysts and investors in a post-earnings call that he is "optimistic" that Amazon’s cloud business will "get better each quarter," citing indications that demand for the service is outpacing capacity.
Free cash flow was at near break-even, compared with consensus forecasts of $8.2 billion, due in large part to large capital expenditures. Like its Big Tech peers, Amazon has targeted heavy spending on artificial intelligence as it looks to harness -- and profit from -- the nascent technology.
Jassy said in a statement that Amazon’s AI efforts are “starting to play out,” pointing to launches like Alexa+, DeepFleet, and Bedrock AgentCore.
“Our AI progress across the board continues to improve our customer experiences, speed of innovation, operational efficiency, and business growth, and I’m excited for what lies ahead,” Jassy said.
For the third quarter, Amazon projected revenue between $174 billion and $179.5 billion, with annual growth of 10% to 13% fueled partially by a 130 basis-point foreign exchange tailwind.
Operating income is expected to range from $15.5 billion to $20.5 billion, compared to $17.4 billion a year earlier. Jassy noted that Amazon has yet to be impacted by President Donald Trump’s elevated tariffs, despite worries that the levies could dent consumer demand and weigh on key sellers who source goods from China.
"Bottom line: This isn’t a ’bad’ report, but the numbers [slash] guide certainly weren’t nearly as spectacular as Meta Platforms (NASDAQ:META) [or] Microsoft (NASDAQ:MSFT)," the Vital Knowledge analysts said in a note, referring to earnings from the two tech titans released earlier this week.
(Pratyush Thakur contributed reporting.)