Amazon shares fall as AI costs impact profit growth.
Amazon shares fell about 7% after the company announced lower-than-expected third-quarter earnings. The main reason is believed to be the significant investment in artificial intelligence (AI).
Revenue is increasing, but profit is expected to decrease.
Amazon, the American e-commerce giant, just announced its Q2 2025 earnings with impressive revenue, but its stock price fell by about 7% after trading hours.
The reason is that third-quarter profit forecasts fell short of analysts' expectations, primarily due to the company's significant spending on artificial intelligence (AI). Second-quarter revenue reached $167.7 billion, a 13% increase year-over-year, exceeding analysts' predictions of $162.2 billion. However, investment costs in AI, particularly infrastructure, have led to a decrease in projected profits.
In the second quarter, Amazon spent $31.4 billion on AI development, largely on data centers that support AI models. The company projected third-quarter operating income of only $15.5-$20.5 billion, lower than the $19.4 billion analysts had expected.
Third-quarter revenue is projected to be between $174 billion and $179.5 billion, slightly higher than the expected $173 billion. Despite revenue growth, heavy spending on AI has resulted in lower-than-expected profits, causing investor concern.
The impetus comes from Amazon Web Services (AWS).
Amazon Web Services (AWS), the company specializing in cloud computing and data center operations, reported a 17.5% increase in revenue to $30.9 billion, in line with Wall Street's predictions. However, analysts at Jefferies believe this growth was less impressive than that of competitors like Microsoft or Google. Nevertheless, Amazon's second-quarter net profit surged 35% to $18.2 billion, exceeding expectations thanks to strong sales performance.
Amazon is in fierce competition with major tech companies like Microsoft, Google, and Oracle to meet the demand for cloud infrastructure for AI.
CEO Andy Jassy stated that the company will spend over $100 billion on AI in 2025, calling it "the biggest revolution of its lifetime." He explained that AI will change every aspect of work, from operations to content creation. However, he also acknowledged that AWS is experiencing a supply shortage compared to demand, due to limitations in power supply and processing chips.
In addition, Amazon is facing challenges from US tariff policies. Mr. Jassy said it remains unclear who will bear the increased costs if the new tariffs are implemented.
Amid economic uncertainty, Amazon benefits from continued strong consumer spending and the delay in imposing high tariffs. The company also benefits from the U.S. lifting tariff exemptions for low-value goods from China, helping Amazon compete better with rivals like Temu.
To optimize costs, Amazon is planning to cut staff in some departments while creating new jobs related to AI. Jassy shared that some current jobs will require fewer people, but many new jobs will emerge.
However, he is unsure how the company's overall workforce will change in the next few years. This move shows Amazon is balancing significant investment in AI with ensuring business efficiency in a fiercely competitive environment.
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