Amazon (NASDAQ: AMZN) Drops in Extended Trading as AWS Growth Slows

Amazon fell in extended hours trading, with the stock price (NASDAQ: AMZN) dropping 3.21%, despite a beat on both top and bottom lines. EPS of $1.59 offered a ~16% beat on the $1.36 expected, with revenue of $155.67 billion a narrow beat on the $155.12 billion consensus.

The initial drop in Amazon's stock had been even more pronounced early upon release, with the price dropping more than 5% to a low of $179.85, before recapturing some of the losses to close out the session at $184.10.

Guidance for Q2 failed to get bulls purring, with the midpoint of the provided range of $159B-$164B largely in line with the consensus of $161B. Commentary surrounding “an unfavorable impact of approximately 10 basis points from foreign exchange rates”, and “lots” of infrastructure investments planned for the upcoming year did little to appease markets.

Perhaps crucially for sentiment, Amazon's cloud business, AWS, underperformed compared to Microsoft's Azure in the first quarter with growth of 17% ($29.27 billion), slower than the 18.9% (29.42 billion) seen in the previous print.

Additionally, the discontinuation of the de minimis trade exemption today is anticipated to affect Amazon’s third-party sellers and its Haul business division adversely. This situation has led some third-party sellers to consider skipping major sales events, including Amazon Prime Day.

In the first quarter, revenue growth from Amazon's third-party seller services more than halved to 7%. These services constitute nearly a quarter of Amazon's total revenue, underscoring their critical importance. To cope with the changes, Amazon's CEO Andy Jassy indicated plans to expedite orders to the U.S. sooner in order to bypass further tariffs.

The pattern from latest earnings reflects some similarity to the previous quarter, where Q4 2024 earnings reported in February surpassed expectations on both revenue ($187.8B) and EPS ($1.86). It was the the accompanying Q1 2025 guidance that fell short of consensus estimates, primarily citing foreign exchange headwinds ($2.1B impact) and escalating capital expenditures. This cautious outlook triggered a sell-off, erasing early year gains and highlighting market sensitivity to near-term profitability concerns. Despite delivering a staggering ~780% return since 2015, Amazon's recent performance paints a picture of increased volatility.

Central to Amazon's narrative is its aggressive investment in AI. CEO Andy Jassy's recent shareholder letter framed this as a “once-in-a-lifetime” opportunity, backed by a colossal $100 billion capital expenditure plan for 2025, significantly up from $83 billion in 2024. This spending fuels AWS's expansion, development of custom AI chips like Trainium, and deployment of generative AI tools like Amazon SageMaker and the Nova model. While AWS’s AI revenue is reportedly growing at triple-digit rates, the sheer scale of investment has clearly weighed on investor sentiment regarding near-term free cash flow and margins.

With a projected $63 billion in free cash flow for 2025, Amazon retains significant financial firepower to fund its AI ambitions and potentially accelerate share repurchases.

However, significant risks remain. The ongoing Federal Trade Commission (FTC) antitrust lawsuit hangs over the company, representing a potential $120 billion valuation risk and threatening structural changes to its marketplace model. Competition in the cloud space remains fierce, with Microsoft Azure and Google Cloud collectively capturing significant market share, even as AWS leads in high-margin AI services.