Amazon Earnings Soar, but Investors Fret Over Profit Margin Concerns

In the second quarter of 2025, Amazon delivered impressive financial results, with revenues of $167.7 billion exceeding market expectations. Earnings per share of $1.68 also significantly beat the consensus estimate. Despite this performance, Amazon's stock tumbled more than 7% in after-hours trading, as investors expressed concerns about the company's forward guidance and operational efficiency.

The primary source of investor disappointment was Amazon's third-quarter operating income guidance, which ranged from $15.5 billion to $20.5 billion, compared to $17.4 billion in the same period of 2024. This wide guidance range suggests uncertainty in management's outlook and raises questions about the sustainability of Amazon's profit margins, particularly amid intensifying competition and substantial investments in artificial intelligence (AI).

Amazon's cloud computing division, AWS, also experienced challenges during the quarter. Operating margins declined from 39.5% in the first quarter to 32.9%, with management attributing roughly half of this drop to seasonal stock-based compensation and the remainder to rising depreciation costs related to AI infrastructure investments and foreign exchange headwinds. While AWS grew 17% year-over-year to $30.9 billion, this growth rate trails that of competitors like Microsoft Azure and Google Cloud.

On a positive note, Amazon's retail segments delivered solid performance, with online store sales reaching $61.5 billion, up 11% year-over-year. Seller services revenues increased 11% to $40.3 billion, and advertising revenues climbed 23% to $15.6 billion, demonstrating the company's continued e-commerce dominance and expanding advertising ecosystem monetization potential.