Cloud computing and online retail behemoth Amazon (NASDAQ: AMZN) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 13.3% year on year to $167.7 billion. Guidance for next quarter’s revenue was optimistic at $176.8 billion at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $1.68 per share was 26% above analysts’ consensus estimates.

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StockStory’s Take

Amazon’s second quarter results exceeded Wall Street’s revenue and profit expectations, but the market reacted negatively, reflecting investor concerns around underlying business trends. Management pointed to advancements in fulfillment speed, the return of premium brands to its marketplace, and strong Prime Day engagement as key drivers. CEO Andy Jassy highlighted operational improvements in logistics and inventory placement, as well as record participation from third-party sellers. While advertising and AWS segments posted solid top-line growth, AWS operating margins fell, and management acknowledged headwinds from higher depreciation expenses and increased competition in cloud computing.

Looking ahead, Amazon’s guidance reflects confidence in continued revenue momentum, underpinned by expansion of same-day and next-day delivery, broader adoption of generative AI services in AWS, and product innovation across retail and devices. Management flagged ongoing investments in robotics and automation, with CFO Brian Olsavsky emphasizing efforts to further lower fulfillment costs and improve customer experience. However, both Olsavsky and Jassy noted that tariff impacts and supply constraints—particularly in cloud infrastructure—could influence results, with Jassy stating, “We just don’t know what’s going to happen moving forward” on tariffs and supply.

Key Insights from Management’s Remarks

Management cited progress in retail delivery speed, Prime Day participation, and AI-driven cloud offerings as central to the quarter, while acknowledging margin pressures in AWS and uncertainty from tariffs.

• Prime Day performance: Management called this year’s Prime Day the largest to date, resulting in a surge of new Prime sign-ups and strong sales from small and medium-sized businesses, which management believes will have a lasting impact on customer engagement.

• Retail logistics advancements: CEO Andy Jassy emphasized the shift to a regional inbound network, noting a 40% increase in direct shipment lanes and a 12% reduction in package travel distance, leading to faster and more cost-efficient delivery.

• Third-party seller momentum: The share of units sold by third-party sellers reached a record 62%, with investments in seller tools and fulfillment cited as key contributors to this growth, enhancing selection and competitive pricing.

• Advertising segment growth: Advertising revenue grew 22% year-over-year, fueled by cross-platform ad solutions like Amazon DSP and new partnerships with Roku and Disney, which management expects to be increasingly important for profitability.

• AWS innovation and margin pressure: While AWS revenue grew, operating margins declined due to higher stock-based compensation and increased capital expenditures. Management highlighted ongoing AI product launches—such as Trainium2 chips and the Kiro coding agent—but acknowledged that supply constraints, especially for power and chips, are limiting the pace of cloud growth.

Drivers of Future Performance

Amazon’s outlook is driven by further logistics improvements, AI expansion in AWS, and ongoing investments in fulfillment and automation, tempered by external risks.

• AI and cloud supply constraints: Management expects cloud growth to be supported by new generative AI services and broader industry migration to the cloud, but cautions that supply constraints—particularly for power and specialized chips—will take several quarters to resolve. CEO Andy Jassy stated, “We could be doing more revenue and helping customers more, and we’re working very hard on changing that outcome.”

• Retail network optimization: The company plans to expand same-day and next-day delivery to more U.S. regions, aiming to boost customer frequency and reduce per-unit fulfillment costs. Investments in robotics and automation are expected to improve operational efficiency, with Jassy highlighting the deployment of the millionth robot and new AI-driven systems like DeepFleet.

• Tariff and macroeconomic uncertainty: Management remains cautious about the potential effects of changing tariff policies and macroeconomic volatility, emphasizing that pricing and demand dynamics may shift if costs rise or consumer sentiment weakens. Both Jassy and Olsavsky indicated Amazon is monitoring these factors closely but cannot predict the ultimate impact.

Catalysts in Upcoming Quarters

In upcoming quarters, our analyst team will focus on (1) the pace of expansion for same-day and next-day delivery and its effect on customer retention, (2) AWS’s ability to overcome supply constraints and maintain margin stability amid large AI infrastructure investments, and (3) the evolving impact of tariffs on pricing and consumer demand. We will also track the adoption and monetization of new AI products across Amazon’s ecosystem.

Amazon currently trades at $221.36, down from $234.06 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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