Amazon earnings beat brushes off mounting cloud concerns – for now
Amazon (AMZN) execs still have their heads in the cloud, as they should.
The tech giant crushed it in the second quarter. And just like that, investors' concerns about the ongoing drop in growth for its cloud division, Amazon Web Services (AWS), washed away — at least temporarily — as the stock climbed 10% to hit a one-year high in early trading on Friday.
The company clocked a small beat on AWS sales while notching some major wins when it came to operating income, operating margins, and its third quarter outlook.
"This is as emphatic a beat and as emphatic a raise as we've seen from Amazon in 18 months," Roth MKM managing director Rohit Kulkarni told Yahoo Finance Live (video above).
That said, Amazon hasn't completely vanquished Wall Street's reservations about decelerating cloud sales. Though AWS managed to notch a beat in Q2, the division's growth trend line has been in decline for more than a year.
"Amazon is overcoming softness in its AWS business, but at some point, they're going to need to prove they can reverse that trend line," Insider Intelligence principal analyst Andrew Lipsman told Yahoo Finance. "I look at AWS first ... I was surprised to see the continued slide in AWS growth rates and the substantial beat on earnings."
On the company's media call, Amazon CFO Brian Olsavsky was very clear that Amazon is in execution mode, and the company's push toward efficiency isn't over.
"We're still pausing on headcount," Olsavsky told Yahoo Finance. "We're still mindful of our cost structure across the board and will be until we get back to a level of profitability."
Meanwhile, Amazon has positioned AI as the way forward for AWS, and CEO Andy Jassy, who previously led AWS, is a believer in the transformative power of AI.
"We have had a very significant amount of business in AWS driven by AI and machine learning in recent years," Jassy said on the company's earnings call. "I think when you're talking about the big explosion in generative AI that everyone is excited about... It's very early, so I expect the impact [of AI in AWS] will be very large and in the future."
"I'm very bullish on the growth of AWS over the next several years," the CEO added.
AWS's AI efforts may start to hit the bottom line in Q3 or Q4 of this year, Lipsman said.
Still, the analyst isn't yet convinced about how and when AWS will show the benefits of Amazon's AI investments: "What's the substance? Where are the applications? What's the efficiency saver that businesses need to invest in now?"
However, those are questions for tomorrow. For today, Amazon did exactly what it needed to do.
"There's no real way to look at it other than a really strong quarter," Lipsman told Yahoo Finance.
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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