Amazon shares fall on weak sales forecast despite CEO touting cloud growth

Amazon forecast current-quarter sales below estimates and said wary retailers are looking for cheaper shopping options, sending shares down 5%.

The after-hours drop in shares came despite second-quarter earnings and cloud computing sales that beat Wall Street estimates.

Amazon CFO Brian Olsavsky said on a call with reporters that consumers are becoming more careful with their spending. “They’re looking for deals,” he said, noting that lower-priced products were selling quickly.

CEO Andy Jassy said on a call with analysts that clients were trading down when they could.

Amazon’s online store sales rose 5% in the second quarter to $55.4 billion, compared with a 7% increase in the first quarter.

One analyst said softer retail sales are fueling the aftermarket selloff in stocks.

“They’re showing continued momentum in the cloud in terms of re-acceleration and so that’s certainly where I think investors will be most positive, but the retail aspect is definitely what’s weighing on the stock right now ,” said Charles Rogers, analyst at M. Science.

Amazon shares had gained more than 20% this year through Thursday’s close.

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued re-acceleration in AWS growth,” Jassy said in a release announcing the results.

Olsavsky told reporters it was difficult to make predictions for the third quarter because events such as the presidential election and the Paris Olympics were distracting consumers. He said Amazon’s two-day discount sales event known as Prime Day in July was “the biggest ever” without giving specifics.

Like competitors, Amazon is ramping up capital spending to invest in infrastructure for and development of artificial intelligence. Olsavsky said spending in the first six months of this year was about $30.5 billion, suggesting about $16.5 billion in the second quarter.

The Seattle-based retailer is playing catch-up with rivals Microsoft, which partners with OpenAI and Google, in developing its own so-called big language models that can almost instantly respond to complex questions or requests.

It has released a chatbot, called Rufus, designed to help customers make purchase decisions for specific purposes.

Both Google parent Alphabet and Microsoft warned investors last month that spending would remain high throughout the year to support the development of expensive AI software and services. Investors took this as a signal that a profit from the buzzing technology may last longer than originally hoped.

Amazon’s cloud business, Amazon Web Services (AWS), reported a 19% increase in revenue to $26.3 billion for the second quarter, beating market estimates of $25.95 billion.

The company expects revenue of $154.0 billion to $158.5 billion for the third quarter, compared with the average analyst estimate of $158.24 billion, according to LSEG data.

Amazon also lost estimates for ad sales, a closely watched metric, as it ramps up competition with rivals Meta Platforms and Google. Sales of $12.8 billion in the quarter compared with the average estimate of $13 billion, according to LSEG data. The company earlier this year began placing ads in its Prime Video offering for the first time.

Still, Olsavsky said he was pleased with the results of the ads. These sales were up 20% in the quarter.