Amazon (AMZN) reported stronger-than-expected earnings for the second quarter of fiscal year 2025, with revenue jumping 13% year-over-year to nearly $168 billion—about $6 billion more than Wall Street forecasts.
Earnings per share rose to $1.68, beating analyst estimates of $1.33 and improving from $1.26 a year ago.
Despite the solid performance, shares of Amazon dropped over 7% in premarket trading Friday, falling to around $214. The decline came after executives offered a mixed outlook for the third quarter, particularly around operating income and the company’s cloud business.
Amazon’s retail engine remains robust. North American net sales grew 11% year-over-year to $100.1 billion, while international sales surged 16% to $36.8 billion. Its subscription and advertising segments—two of its most promising profit drivers—also delivered: combined revenue reached $28 billion, with advertising alone jumping 22% year-over-year.
Operating income hit $19.2 billion, up from $14.7 billion in the same quarter last year. Net income totaled $18.2 billion, showing a healthy uptick from $13.5 billion a year earlier.
Cloud Business Slows in the AI Boom
While the retail and advertising sides of the business exceeded expectations, Amazon Web Services (AWS)—long considered the crown jewel of the company—delivered more mixed results. The cloud unit posted $30.9 billion in revenue, up 17.5% year-over-year and in line with analyst forecasts. Yet, AWS margins fell from 35.5% to 32.9%, driven by rising costs tied to share-based compensation and capital expenditures.
That margin compression raised red flags, especially as rivals like Microsoft (MSFT) Azure and Google (GOOG) Cloud posted far stronger growth over the same period—39% and 32%, respectively.
Despite the solid performance, shares of Amazon dropped over 7% in premarket trading Friday, falling to around $214. The decline came after executives offered a mixed outlook for the third quarter, particularly around operating income and the company’s cloud business.
Amazon’s retail engine remains robust. North American net sales grew 11% year-over-year to $100.1 billion, while international sales surged 16% to $36.8 billion. Its subscription and advertising segments—two of its most promising profit drivers—also delivered: combined revenue reached $28 billion, with advertising alone jumping 22% year-over-year.
Operating income hit $19.2 billion, up from $14.7 billion in the same quarter last year. Net income totaled $18.2 billion, showing a healthy uptick from $13.5 billion a year earlier.
Cloud Business Slows in the AI Boom
While the retail and advertising sides of the business exceeded expectations, Amazon Web Services (AWS)—long considered the crown jewel of the company—delivered more mixed results. The cloud unit posted $30.9 billion in revenue, up 17.5% year-over-year and in line with analyst forecasts. Yet, AWS margins fell from 35.5% to 32.9%, driven by rising costs tied to share-based compensation and capital expenditures.
That margin compression raised red flags, especially as rivals like Microsoft (MSFT) Azure and Google (GOOG) Cloud posted far stronger growth over the same period—39% and 32%, respectively.
CEO Andy Jassy defended AWS’s position, citing major investments in AI infrastructure and ongoing challenges in chip and electricity supply. “We’re still early in the generative AI era,” Jassy said. “We believe our cost advantages and customer relationships will pay off over time.” Still, the response failed to calm investors.
Amazon’s capital spending was particularly high. The company spent $31.4 billion in Q2 alone and expects to spend around $60 billion more by year’s end. AWS accounted for a large share of that investment, as Amazon races to meet demand for AI-powered cloud services. Yet, analysts are increasingly questioning whether the cloud leader is falling behind in capturing AI-driven growth.
Guidance, Tariffs, and Investment Caution Weigh on Stock
Amazon’s guidance for Q3 sales landed between $174 billion and $179.5 billion, pointing to continued 10% to 13% annual growth. But operating income is projected between $15.5 billion and $20.5 billion—below Wall Street's midpoint estimate of $19.5 billion.
This marked the second straight quarter where conservative profit guidance spooked the market. While Amazon has consistently outperformed its own forecasts—Q2 operating income surpassed the top end of guidance by $1.7 billion—investors appear less willing to give the company the benefit of the doubt amid rising geopolitical risks and ballooning expenses.
Tariffs remain a wildcard. The average U.S. tariff rate jumped from 2.4% in Q1 to 10% by the end of Q2, and new trade barriers could push costs higher in the months ahead. So far, Amazon says consumer demand remains stable, but the full impact of tariffs may not be felt until inventories stocked before implementation begin to run low.
“We haven’t yet seen diminishing demand nor prices meaningfully appreciating,” Jassy noted, but he acknowledged the uncertainty. “It’s impossible to know what will happen.”
Confidence in Core Business, but Challenges Ahead
Amazon’s Q2 results paint a picture of a company executing well in its core business while navigating external pressures and internal transformation. Retail, advertising, and logistics showed strength, but AWS—despite solid revenue growth—faced skepticism amid rising investment and slowing margins.
For now, analysts remain optimistic. Pivotal Research raised its price target on Amazon to $285, calling the recent share dip a buying opportunity. Telsey Advisory also lifted its target to $265, citing Amazon’s dominance in retail and its long-term AI prospects.
Still, the market's reaction suggests that in an increasingly selective tech landscape, even giants like Amazon need more than strong revenue to win investor favor.
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