From a big rise to a turnaround! Amazon self-destructs: AWS will be worse in April and is heavily investing in AI!

As the last tech giant to release its financial report this week, Amazon seems to have replicated the glory of Microsoft, Alphabet-C, and Meta Platforms, but not entirely.

Overnight, Amazon's first-quarter earnings report showed that although revenue growth is still in single digits year-on-year, the 9% growth to $127.36 billion is still higher than analysts' expectations; the company turned a loss into a profit for the quarter, with a net profit of $3.2 billion, compared to a loss of $3.8 billion in the same period last year; operating profit increased by 30% year-on-year to $4.8 billion, significantly exceeding analysts' expectations of $3 billion.

As a result, Amazon's stock price surged more than 11% after hours, but quickly fell back after the conference call began, and then continued to decline until it turned negative, ending up down more than 2%.

What "thunder" was released during the earnings conference call?

The market generally believes that the reason why Amazon's stock price suddenly plunged and turned negative after hours is because of a sentence spoken by its CFO Brian Olsavsky during the conference call - "As customer cloud spending continues to slow down, Amazon's profitability for Amazon Web Services is now lower than it was a year ago, partly because the company offers discounts to customers in exchange for long-term contracts."

The executive also said that "Amazon's growth rate in April may be about 5 percentage points lower than in the first quarter."

In the first quarter of this year, Amazon's sales increased by 16% year-on-year to $21.4 billion, exceeding analysts' expectations of $21 billion. However, this is the fifth consecutive quarter of slowing growth for Amazon, and the operating profit of $5.1 billion is far from the $6.5 billion in the same period last year. The operating profit margin of 24% is also the lowest level since the second quarter of 2017.

Amazon executives see that in uncertain economic times, companies continue to be cautious about spending, and "customers are trying to save money," but believe that "there will be significant growth in the future."

Wall Street analysts also believe that Amazon's performance in its main profit center, Amazon and advertising, is stronger than expected, which may indicate that the company's business and the digital advertising industry may be improving.

AI? Invest heavily!

In addition to its core business, Amazon naturally keeps up with the times and talks about the trendiest and most popular artificial intelligence (AI) during the conference call.

Amazon CEO Andy Jassy said:

"Our advertising business continues to achieve strong growth, mainly due to our continued investment in machine learning, which helps customers see relevant information when interacting with us, which in turn brings exceptionally strong sales results for brands." Olsavsky said that the company has reduced its spending on warehouses and logistics infrastructure in core logistics and transportation areas to provide more funding space for Amazon, including investments in large language models and generative AI.

Compared with Microsoft, Alphabet-C, and even Chinese technology giants, Amazon AI and large models "came late" and were officially announced to the market in mid-April. Is there any advantage?

In Andy Jassy's view, Amazon will be "one of the few companies that prioritize the development of large language models." The reason is that mainstream large models take many years to build and require billions of dollars in support. "Few companies are willing to invest such time and money, but Amazon is one of them."

He also believes that generative AI that can help programmers will become the most eye-catching tool, and the company is eager to develop "the best personal assistant in the world." How to speed up?

Amazon said that its voice assistant Alexa is now backed by a huge language model, but "we are building a larger, more universal, and more powerful model."

What will be the final effect? Can Amazon stand out in this AI competition? The market is watching.