Amazon Q2 Earnings Preview: 5 Things To Know

Amazon Q2 Earnings Preview: 5 Things To Know


Amazon’s next quarterly earnings call should feature details on Amazon Web Services management and AWS’ AI and database products.


A new Amazon Web Services CEO. The opportunity in artificial intelligence. And innovation in the database business.

These are some of the subjects likely to come up during the Seattle-based cloud giant’s Thursday earnings call, when AWS parent Amazon reports earnings for its 2024 second quarter (ended June 30).

AWS has more than 130,000 partners worldwide, according to CRN’s 2024 Channel Chiefs.

[RELATED: The 10 Biggest AWS News Stories Of 2024 (So Far)]

Amazon Q2 Earnings

In a July 26 report, Bank of America said it expects AWS to “benefit from carry-through of strong 4Q backlog growth, and increasing consumption spend around model training.”

“We think $1bn q/q growth to 18% y/y would be healthy vs peers,” according to the firm’s report. “We saw GCP [Google Cloud Platform] results as a positive read-thru for AWS, with a 1pt q/q accel. & margin upside suggesting limited pricing pressure.”

Bank of America estimated Amazon.com’s total revenue for the quarter at $149 billion, above Wall Street consensus.

Although AWS is widely considered the leader in cloud computing, the vendor appears to have lagged behind No. 2 cloud provider Microsoft and No. 3 cloud provider Google in the generative AI market.

Thursday’s call could be a chance for Amazon leaders to show progress in GenAI and other business units important to AWS partners.

Here’s what you need to know ahead of Amazon’s earnings report for the second quarter of 2024.


New AWS CEO Can Make A Statement

Thursday marks Amazon’s first quarterly earnings report since Matt Garman (pictured) took over as AWS CEO effective June 3, giving analysts some early looks into results from his leadership.

A Morgan Stanley report on July 23 said that the firm believes “AWS needs to grow 18%+ (showing some acceleration) in order to build new management credibility (after a recent series of media interviews) and to ensure investors of AWS’s GenAI positioning and its ability to generate high teens growth through this heavy capex investment period.”

Wedbush’s July 25 report on Amazon agreed with the 18 percent growth figure, adding that Wall Street consensus is 16.9 percent growth year over year.

A July 22 report from Melius struck an optimistic tone with AWS’s growth, saying that while “the AI narrative in July has grown skeptical as some initiatives from OpenAI are yet to be available and checks around Microsoft Copilot are mixed … Cloud growth seems to be accelerating at all of the big guys.”

The firm noted about 30 percent growth or more in cloud revenue at Google and Microsoft, “with our checks positive for every single one of them (including AWS and Oracle).”

“This acceleration seems to be due to AI initiatives/tools adoption by customers and each cloud receiving more H100s from Nvidia,” according to the report.

On July 11, Morgan Stanley reported results from a second quarter survey of CIOs, showing that AWS is a “Preferred Vendor for Managing Hybrid Cloud Environments,” behind Microsoft and ahead of VMware. AWS scored 21 percent in the latest survey, up from 20 percent the prior quarter. Microsoft scored 48 percent both times.

Microsoft Azure and AWS hosted “the largest percentage of workloads residing in the public cloud today at 42%/27%, respectively,” according to the Morgan Stanley survey. “The data suggests CIOs anticipate more material share gains for Azure (+671 bps) and GCP (+594 bps) over the next three years, compared to AWS (+255 bps).”

Microsoft and Amazon remain the most likely to benefit “as workloads shift to the cloud … in 2024 … and over the next three years,” according to the report.

A July 11 report from Morgan Stanley added that Dell and Oracle were the most likely market share donors in 2024 and over the next three years.


The Cost Of AI

A July 12 report by KeyBanc put the additional capital expenditures by AWS, Microsoft Azure and Oracle Cloud Infrastructure, collectively, at “another $7.3B and $13.0B in cloud capex expected to be spent in 2024 and 2025, respectively, since the last time we updated our cloud capex numbers three months ago,” increasing the total from “$80.6B in 2024 and $90.9B in 2025” to now standing “at $87.9B and $103.9B.”

Azure represented “the biggest jump on an absolute basis,” with Microsoft predicted to “spend over $50B in Azure capex alone in 2025 compared to $42.6B just three months ago.”

“There may be more rumblings about fears of an AI overbuild popping up in the media, but the movement in the last three months indicate the build is still going full bore,” according to the report.

The July 22 Melius report characterized big U.S. cloud vendors as in “a ‘gold rush’ phase – racing each other to create tools to onramp customers and transform customer-facing products to get ahead.”

“However, there are only so many quarters in a row they can raise their Capex budgets by 20%,” according to the report.

A July 25 Wedbush report said that “emerging AI monetization” and “capex requirements to support infrastructure and AI investments” are part of its focus going into Amazon’s earnings.

“Management views generative AI as a tens of billions of dollars revenue opportunity and Amazon is pursuing growth across enterprise (AmazonQ, Bedrock, custom silicon, etc.)” and in Amazon’s consumer business, according to the report. “We will be listening on the call for commentary related to AI contribution to AWS as well as the broader business.”

A July 18 Morgan Stanley report said that industry watchers are concerned with energy constraints as a barrier to scaling AI and the timing and incrementality of GenAI software spending for the likes of Amazon, Google and Microsoft.

Morgan Stanley expects to see deals between the hyperscalers and nuclear power companies to place AI data centers. When it comes to GenAI software spending, Morgan Stanley surveys show 50 percent of AI spending is expected to come from outside traditional IT budgets and the other half to come from existing budgets.

About 40 percent of organizations said they expect to have an AI or large language model project in production in 2024. While 23 percent put production in 2025, 19 percent put production beyond 2025. About 10 percent of organizations don’t have AI or LLM plans.


The AI Opportunity

A July 28 Wedbush report doesn’t mince words on the AI opportunity for Amazon and other vendors. “This is the start….not the end of this tech bull run we expect [over] the next few years,” according to the report. “We estimate that companies, utilities, governments will spend over $1 trillion combined in AI capex over the coming years fueling this AI Revolution.”

The firm is comfortable with increasing CapEx from vendors and said that a potential interest rate cut from the Federal Reserve later this year could help with AI investments.

“While investors may fret about this massive spending wave and frustrated that top-line growth/margins from these investments could take time to materialize, this ultimately speaks to our view [that] this is a 1995 start of the Internet Moment and not a 1999 Tech Bubble-like moment,” according to the report.

Wedbush continued: “We strongly contrast this is not Meta/Zuckerberg spending on metaverse from 2 years ago, instead this is an AI arms race taking place in the US, China, and around the globe for building out the enterprise and consumer AI ecosystem. Rome was not built in a day, and neither will this unprecedented AI Revolution.”

The July 11 Morgan Stanley report said that based on its CIOs survey, “Microsoft is the clear beneficiary of incremental GenAI spend” over the next year and next three years, each at 46 percent.

However, “Amazon and Salesforce screen positively as net share gainers on a one-year view, while Amazon and Google screen as potential AI spend net share gainers on a three-year view.”

Amazon received 6 percent of CIO responses for 2024, ahead of Salesforce’s 4 percent. It received 7 percent in the three-year view, tying with Google and ahead of Snowflake’s 5 percent.

When it comes to IT budgets in 2024 and over the next three years, Microsoft and Amazon were “best positioned to gain incremental percentage,” according to the report.

Although “Microsoft’s lead over Amazon remains sizeable on an absolute basis, from a 2024 view (+45% vs +17%), and on a 3-year view (+43% vs +13%),” the report noted that “Microsoft’s lead over Amazon narrowed by 2 points on a 1-yr view, and, notably, narrowed by 9 points on a 3-yr view.”

Amazon executives will likely use Thursday’s call to tout recent product announcements including AWS App Studio, an AI-powered service that uses natural language for creating enterprise-grade applications. AWS APP Studio is in preview for U.S. West (Oregon) region users, according to the vendor.


Database Growth Potential

Morgan Stanley’s July 11 report found that “CIOs indicate highest levels of consolidation in Database / Data Storage vendors,” opening an opportunity for Amazon and its rivals in the space.

“The trend towards consolidation in core database and data storage offerings likely benefits those vendors with broad solution offerings in core operational databases (i.e. Microsoft, Amazon, Google, Oracle) as well as vendors that offer flexible database architectures that can handle various data types and schemas, such as MongoDB’s document model,” according to the report.

Amazon executives on the call may use the time to tout product advancements in the portfolio such as the general availability of Amazon MemoryDB vector search and more region availability for a variety of capabilities, including Amazon Relational Database Service (RDS) Data API for Aurora PostgreSQL, Amazon RDS Snapshot Export to S3 and Amazon Aurora zero-ETL integration with Amazon Redshift.


CrowdStrike Raises Industrywide Questions

Although the recent faulty CrowdStrike update only impacted Windows systems, it is possible the issue has led to analysts seeking details and assurances from other technology vendors around their exposure to such an event happening with their products.

In a July 23 report, Webush said that “for Microsoft as well as Google and Amazon, the CrowdStrike disaster outage … has further highlighted the interconnected nature of cyber security software and the cloud ecosystem.”

Amazon may use the opportunity to talk about recent advancements in its security portfolio, including enhanced search capability in AWS Artifact Reports, new controls for AWS Security Hub and greater regional availability for the likes of Amazon Cognito, AWS Network Firewall and AWS IAM Identity Center.



Source link
lol

Amazon’s next quarterly earnings call should feature details on Amazon Web Services management and AWS’ AI and database products. A new Amazon Web Services CEO. The opportunity in artificial intelligence. And innovation in the database business. These are some of the subjects likely to come up during the Seattle-based cloud giant’s Thursday earnings call, when…

Leave a Reply

Your email address will not be published. Required fields are marked *