Amazon's share price weighed down by AWS growth concerns and heavy AI investment
The e-commerce giant delivered strong financial results in early August but shares fell as investors questioned cloud momentum and the impact of massive AI spending on cash flows before re-entering the fray.
Strong headline numbers fail to impress markets
Amazon's latest quarterly earnings in early August provided plenty of fodder for investors, with a strong set of headline figures ultimately overshadowed by concerns about the outlook and the cost of its aggressive investment strategy.
The second quarter saw revenues jump 13% year-on-year (YoY) to $167.7 billion, comfortably ahead of Wall Street expectations, while net income surged by more than a third to $18.2 billion. Earnings per share (EPS) of $1.68 marked a clear beat, and operating income climbed to $19.2 billion, underlining the continuing strength of the group's core operations.
Yet despite the impressive growth, the market's response was anything but enthusiastic. Shares slumped in the aftermath of the release, sliding around 8% as investors fixated on slowing momentum in the group's cloud arm and a cautious profit outlook for the months ahead.
Since then the Amazon share price has recovered and nearly revisited its July peak before slightly coming off again amid a general sell-off in technology stocks last week as investors fret over high artificial intelligence (AI) investments and valuations.
The disconnect between strong fundamental performance and negative market reaction illustrates how elevated expectations and valuation concerns can dominate investor sentiment, even when companies deliver solid operational results.
AWS growth deceleration raises competitive concerns
Amazon Web Service (AWS) remains the tech giant's most profitable division, with sales up 17.5% to just under $31 billion and operating income above $10 billion. But the rate of expansion continues to lag rivals Microsoft Azure and Google Cloud, fuelling worries that the company's dominance in the sector could be slipping.
The cloud computing market has become increasingly competitive, with Microsoft and Google making significant inroads through aggressive pricing and enhanced service offerings that have attracted enterprise customers.
AWS growth of 17.5%, while impressive in absolute terms, represents a continued deceleration from the 20%+ growth rates that investors had become accustomed to during the cloud computing boom years.
This competitive pressure in Amazon's highest-margin business segment creates particular concern for investors, as AWS profitability has historically subsidised investments and lower margins in other parts of the business.
Massive AI investment squeeze cash generation
Amazon is betting heavily that its huge investment programme will pay off, with over $30 billion in capital expenditure during the quarter alone. Much of this spending is being ploughed into AI infrastructure and the development of new agent-based systems, designed to move beyond headline-grabbing large language models and toward more practical, task-focused applications.
While management sees this as crucial to the group's long-term competitive edge, the immediate impact has been a sharp squeeze on free cash flow, which has fallen dramatically from last year's levels.
The scale of AI investment reflects Amazon's determination to maintain technological leadership across multiple business segments, from cloud computing to e-commerce personalisation and logistics optimisation.
However, the immediate impact on financial metrics creates tension between short-term profitability and long-term strategic positioning, with investors questioning whether current spending levels are sustainable or necessary.
Analyst sentiment remains constructive despite concerns
For all the market's jitters, the consensus among analysts remains firmly upbeat. The vast majority of those covering the stock still rate it a buy, with price targets clustered in the $260.00–$300.00 range, comfortably above current levels.
Amazon LSEG Data & Analytics chart
TipRanks rates Amazon with a Smart Score of ’10 Outperform’ and as a ‘strong buy’ with only 1 analyst rating the company’s shares as a ‘hold’.
Amazon TipRanks Smart Score chart
The case for optimism rests on Amazon's ability to turn today's heavy AI and cloud spending into tomorrow's profits, and for long-term investors the post-earnings dip is being presented as an opportunity rather than a warning sign.
This analyst confidence reflects belief in Amazon's track record of successful long-term investments, from AWS development to logistics infrastructure, that initially pressured margins but eventually delivered substantial competitive advantages.
The price target range suggests that analysts see current valuation levels as attractive entry points for investors willing to look beyond near-term margin pressure toward longer-term growth potential.
Technology sector faces elevated expectations
In the short term, however, Amazon finds itself in the same position as much of the US technology sector: strong results that fail to satisfy, lofty valuations that leave little room for disappointment, and a broader market beginning to question the sustainability of the AI-driven rally.
The technology sector's outperformance over recent years has created a situation where even solid fundamental progress may not be sufficient to justify current valuation levels, particularly if growth rates show any signs of moderation.
Investor expectations for AI-related returns have become increasingly demanding, with markets seeking evidence that massive investments in AI infrastructure will translate into measurable business improvements and profit growth.
This environment creates particular challenges for technology companies that must balance short-term financial performance with longer-term strategic investments that may take years to deliver returns.
E-commerce fundamentals remain solid
Beyond the cloud and AI focus, Amazon's core e-commerce operations continue to demonstrate resilience and growth, providing a foundation for the overall business even as investors focus on higher-growth segments.
The retail division benefits from continued market share gains and operational efficiency improvements that support margin expansion despite competitive pressures from traditional retailers and specialist e-commerce platforms.
International expansion opportunities and the continuing shift toward online commerce provide structural growth drivers that support Amazon's retail operations across different economic cycles and market conditions.
The integration of AI and automation into e-commerce operations could eventually deliver productivity improvements and customer experience enhancements that strengthen competitive positioning in core markets.
Amazon technical analysis
The Amazon share price, up around 4% year-to-date, remains medium-term bullish despite its early August sell-off to $211.42. It is close to where the 200-day simple moving average (SMA) may be seen at $212.35 at present.
While the recent $211.42 low underpins on a daily chart closing basis, the medium-term uptrend in the Amazon share price is deemed to stay intact with a rise above its July $236.53 peak, towards its $242.52 February record high, remaining on the cards.
Amazon daily candlestick chart
A fall through the April-to-August uptrend line and last week’s low at $220.50 may trigger a sell-off to the $212.35-to-$211.42 support zone, though.
Failure there and a slip through the 23 June low at $207.31 may lead to the May price gap at $197.85-to-$194.69 to be closed.
Investment considerations for Amazon shares
For investors considering Amazon following the mixed earnings reaction, the company presents a classic growth versus valuation trade-off that requires careful consideration of risk tolerance and investment timeframe.
- Research Amazon's competitive positioning across its various business segments, investment strategy, and long-term growth prospects to understand the investment case.
- Consider how your risk tolerance aligns with technology sector volatility and the execution risks associated with large-scale strategic investments.
- Open an account with IG by visiting our website and completing the application process.
- Search for 'Amazon.com Inc' or its ticker 'AMZN' on our trading platform or app.
- Implement appropriate risk management given Amazon's volatility and the binary nature of its longer-term strategic bets.
Spread betting and CFD trading provide flexible approaches for trading Amazon, allowing positions on both rising and falling prices while managing the substantial volatility typical of large technology stocks.
For longer-term investors who believe in Amazon's transformation potential, share dealing offers direct ownership, though investors should be prepared for continued volatility as the company navigates its strategic investments.
For now, the numbers show Amazon remains a formidable growth story, but sentiment will hinge on whether AWS can re-accelerate and whether those costly AI bets begin to bear fruit. The tension between current investment levels and future returns will likely continue to drive share price volatility as markets await evidence that Amazon's strategic vision will deliver the expected financial results.
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