- Amazon’s shares down 8.1% in pre-market trading
- First time the company has missed quarterly revenue forecasts since Q3 2022
- Investors increasingly worried about financial returns on significant AI investment
“Amazon could see one of its top 25 biggest ever one-day falls on the stock market over the past 20 years when Wall Street opens today. Its shares have fallen by 8.1% in pre-market trading after investors were spooked by higher capital spending and shrinking profit margins,” says Dan Coatsworth, investment analyst at AJ Bell.
“The average one-day share price movement for Amazon over the past 20 years is a 0.1% gain, according to AJ Bell analysis of LSEG data. Its share price has only fallen by more than 8% in a day on 22 occasions since 2004, meaning today’s movement is significant.
“Amazon’s share price slump comes in the middle of a broader risk-off shift in the market with investors worrying about when companies will make positive financial returns from the significant amount of money being spent on AI, and whether the US is facing a hard landing as economic indicators flash red.
“Investors have begun to scrutinise big tech companies a lot more than they’ve done over the past few years. After lapping up significant share price returns as companies like Amazon enjoyed strong profit growth and were at the centre of a new technology revolution powered by artificial intelligence, the wheels are coming off the AI bandwagon.
“Amazon might have been on cloud nine; now it faces a more uncertain future. Billions of dollars are being spent on the infrastructure to support AI and there is only so long that companies can keep splashing the cash before questions are asked about returns on investment.
“There are growing fears that companies seeking to deploy AI might take their foot off the accelerator and that could reduce demand for cloud computing servers or advanced semiconductors used to process information. Given that Amazon and its peers have been spending big to increase capacity to support extra supply, they don’t want to be caught out by a slump in demand.
“Amazon’s quarterly revenue, covering the three months to 30 June 2024, missed forecasts for the first time since 2022’s third quarter numbers. Margins in the Amazon Web Services arm narrowed by 2 percentage points to 36% versus the previous quarter amid an increase in infrastructure spending. The company also guided for operating income for the third quarter to be in the range of $11.5 billion to $15 billion, below analysts’ expectations for $15.1 billion.
“While these are still gigantic numbers, share prices are heavily influenced by what the market expects. When a company says it won’t do as well as the market thought, it’s natural to see the share price fall back to reflect investor disappointment and factor in a lower level of earnings.”
