Amazon.com on Thursday is expected to report a rise in capital spending on artificial intelligence, joining Google and Microsoft, as big tech companies race to profit from the fast-growing technology.
According to LSEG data, the e-commerce giant’s capital investments – primarily for building out cloud and generative AI infrastructure – are expected to rise 43% to $16.41 billion in the second quarter. This represents an increase of about $1.5 billion compared to the previous three months.
The hefty spending is also expected to put pressure on Amazon’s margins, outweighing the gains from cost cuts and supply chain efficiencies that have been driving the retail unit’s profitability.
The company’s Amazon Web Services (AWS) business has long dominated the cloud-computing market, but it has faced stiff competition from Microsoft in recent quarters, as the Windows maker has rolled out AI-powered services in its Azure cloud business.
In response, Amazon has partnered with companies like Anthropic and offered startups free credits that cover the cost of using key AI models to grow the market share of its AI platform Bedrock. It also named a new head for the AWS unit in May.
Microsoft and Google parent Alphabet also said earlier this month that they would keep investing even if benefits from AI take longer than some investors expect. That hit Big Tech stocks, whose valuations have soared this year on the promise of AI.
“Amazon’s capital spending will certainly be closely scrutinized. It has been slow to adopt AI and is skewed toward smaller companies, which are struggling in a high interest rate environment,” said Ben Barringer, analyst at Quilter Cheviot.
“We expect AWS to begin accelerating its AI development going forward.”
Amazon shares have risen about 23% this year. The stock has fallen more than 6% since July 8, when it hit a record high, part of a broader market sell-off led by U.S. megacaps.
According to LSEG data, growth in AWS is likely to be above 17%, similar to the previous quarter. But, analysts at Morgan Stanley said: “AWS needs to grow above 18% to reassure investors about the position of AWS (AI) and its ability to generate high-teens growth during this heavy capital investment period.”
As a result of the increase in spending, Amazon’s gross profit margin growth is expected to slow to 1.3% in the April-June quarter, compared to 2.6% in the previous quarter and an average of 2.7% over the past two years.
Growth in its North American retail business probably slowed to 8% between April and June, from 12.3% in the January-March quarter, amid signs of a broader slowdown in consumer spending and some competition from new and fast-growing Chinese players such as Temu and TikTok Shop.
Amazon’s total revenue is expected to rise 10.6% to $148.56 billion — the slowest growth in five quarters.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
