Amazon shares fall after weaker holiday sales forecast

In short: Amazon’s share price fell after it reported slightly disappointing revenue and warned that Christmas season sales may be weaker than investors expected.

What happened

Amazon said total revenue for the third quarter was $201.9bn, which was a little below what Wall Street expected. The company also gave a lower sales forecast for the Christmas shopping period, which is Amazon’s busiest time of year.

After the update, Amazon shares fell about 5 per cent in after-hours trading. After-hours trading is when investors buy and sell shares after the stock market closes.

One bright spot was Amazon Web Services, or AWS. AWS is Amazon’s cloud business, which means it rents computing power and storage to other companies (like renting a warehouse and electricity, but for data and software). AWS sales rose 39 per cent from a year earlier to $46bn, which beat expectations.

Investors are paying close attention because Amazon is spending heavily on AI-related infrastructure. CEO Andy Jassy plans to put about $220bn into capital expenditure this year, much of it for advanced chips and data centres, which are large buildings filled with computers.

Amazon said capital expenditure reached $75.8bn in the quarter. The company’s “free cash flow” over the last 12 months was minus $42.4bn, meaning it spent more cash than it brought in during that period.

Why it matters

Big tech companies are spending huge amounts to support AI services, but investors still want to see strong retail and advertising growth too. Amazon’s results show a split picture, with fast growth in AWS, but softer expectations for holiday shopping. The next few months will help show whether Amazon can keep funding its AI build-out while also meeting profit and sales expectations.

Source: Financial Times