Amazon.com Inc. (NASDAQ: AMZN) drops over 1.60% in pre trading session on Friday as the company cautioned that growth in its cloud computing business is slowing, dashed hopes that the company’s most profitable section would be able to weather a dismal climate for technology expenditure.
On a conference call Thursday, after reporting first-quarter profit and revenue that exceeded Wall Street expectations, executives surprised investors by revealing that Amazon Web Services sales growth had slowed further in April. In the first quarter, AWS revenue increased 16% to $21.4 billion, the slowest growth rate since Amazon began separating out the unit’s revenues.
Amazon shares, which had risen as much as 12% in extended trading, relinquished those gains following the comments. In premarket trade on Friday, shares were down 1.3%. Some analysts have speculated that as businesses seek to reduce technology costs, AWS growth could fall into the single digits, a dramatic slowdown for a company that entered 2022 with quarterly sales up nearly 40% year on year.
AWS is the largest provider of rental computing power and software services, competing with Microsoft Corp. and Alphabet Inc.’s Google. For years, the segment has been Amazon’s major source of operational revenue, helping to fund the company’s significant expenditures in new sectors even while Amazon failed to earn a profit in its core online retail division. AWS is less lucrative than it was a year ago, which is due in part to reductions granted in return for longer-term contracts as customers cut down on spending, according to Chief Financial Officer Brian Olsavsky during a conference call with reporters.
Analysts grilled executives about the company’s efforts in artificial intelligence, particularly for the cloud sector, as they did with Amazon’s competitors. Amazon CEO Andy Jassy stated that the company has invested in machine learning over the past 25 years.
“It’s deeply ingrained in everything we do,” he said, adding that he believes AWS will profit from large-language models and generative AI by giving tools that allow businesses to tailor the technology to their specific requirements. He also stated that Amazon is working on computer chips that will have the potential to assist train large-language models, which are the foundation of popular chatbots like OpenAI’s ChatGPT.
Growth in Amazon’s primary e-commerce business has likewise dropped considerably since a pandemic-era boom peaked. Sales in Amazon’s online retail category — the company’s core business — were flat year on year and down approximately 4% from the same time last year.
To deal with this fact, Amazon has shifted its focus to the more lucrative industry of providing services and advertising to independent merchants that rent space on Amazon’s website and in its warehouses. This shift is reflected in the first-quarter results. In the third quarter, advertising revenues increased by more than 21% to $9.51 billion, while seller services increased by 18% to $29.8 billion.
