Amazon.com Inc. delivered better-than-expected results in its first-quarter earnings report, but it followed up with mixed guidance that’s “subject to change” as a result of the uncertainty caused by U.S. President Donald Trump’s sweeping tariffs.

The company’s cloud infrastructure business also came up short, missing revenue expectations for a third straight quarter, and its stock was down more than 3% in the after-hours trading session.

Amazon reported earnings before certain costs such as stock compensation of $1.59 per share in the quarter, easily beating Wall Street’s target of $1.36 per share. Revenue for the period came to $155.67 billion, surpassing the analysts’ target of $155.04 billion.

All told, Amazon’s net income for the quarter came to $17.73 billion, a substantial increase from the same period last year when it delivered a $10.43 billion profit. The company has worked hard to increase its profitability in recent years, with Amazon Chief Executive Andy Jassy (pictured) implementing a series of cost-cutting measures aimed at boosting the efficiency of its retail businesses’ logistics operations.

For the current quarter, Amazon said it’s looking at sales of between $159 billion and $164 billion, representing growth of 7% to 11%. The midpoint of that range is slightly higher than Wall Street’s projection of $160.9 billion.

However, Amazon came up short when it said it’s also looking for operating income of between $13 billion and $17.5 billion in the second quarter, with the midpoint falling well below the Street’s target of $17.64 billion.

Amazon Chief Financial Officer Brian Olsavsky told analysts on a conference call that Trump’s tariffs are causing lots of uncertainty, making it hard to project an outlook with confidence.

“The general uncertainty that we’re seeing and the uncertainty of consumer demand and everything else is causing us to increase the range a bit,” Olsavsky said of the company’s guidance. “So we’ll see. We feel it’s an informed view of Q2 right now.”

The challenge for Amazon is that both itself and many of the third-party sellers on its marketplace rely on Chinese factories to manufacture or supply components for their products. Some sellers on Amazon have already increased their prices and cut back on advertising spend to counter the effects of the tariffs.

Amazon Chief Executive Andy Jassy (pictured) said the diversity of Amazon’s third-party seller base means that not all sellers will “pass all or any of those tariffs on to customers.” He added that Amazon could emerge even stronger from the uncertain environment thanks to its ability to offer lower prices than most competitors, noting that customers previously flocked to its platform during the Covid pandemic.

“It’s hard to tell what’s going to happen with tariffs right now,” Jassy said. “It’s hard to tell where they’re going to settle and when they’re going to settle.”

AWS cloud comes up short

Amazon’s iffy guidance came as the company’s most profitable business unit, Amazon Web Services Inc., missed revenue expectations for the third time in a row. The unit delivered sales of $29.27 billion, up 17% from a year ago but below the $29.42 billion analyst target. Its growth rate slowed from 18.9% in the previous quarter.

AWS accounts for around 19% of Amazon’s total revenue. It’s the world’s largest cloud infrastructure provider, but it’s not growing as fast as its rivals. Its main competitor Microsoft Corp. said on Wednesday that growth in Azure surpassed expectations, while Google LLC’s cloud business fell just shy of the Street’s consensus.

The company said AWS generated operating income of $11.55 billion in the quarter, above the analyst’s forecast of $10.52 billion, thanks to an increased operating margin of 39.5%, the widest it has been in over ten years.

AWS said in the quarter it’s launching a new video game streaming service and forming a new business that’s focused on building artificial intelligence agents.

The unit spent just over $24.3 billion on capital expenditures during the quarter, up 74% from the previous year as it raced to build out the data center infrastructure needed to support AI workloads. In February, Amazon said it’s looking to spend roughly $105 billion in capex this year, with the vast majority of that earmarked for data center build-outs.

In his annual shareholder letter last month, Jassy said he expects that the cost of AI computing infrastructure will come down over time, partly thanks to Amazon’s customized processors, which provide an alternative to Nvidia Corp.’s graphics processing units. Still, there should be plenty of room for Amazon to continue generating profits. On the conference call today, Jassy told analysts that the AWS AI business is now doing “billions” in annualized revenue.

“I think we could be helping more customers and driving more revenue for the business if we had more capacity,” Jassy explained. “We have a lot more Trainium2 instances and the next generation of Nvidia instances landing in the coming months.”

Holger Mueller of Constellation Research Inc. said the AWS business grew well despite missing analyst’s forecasts, delivering almost two thirds of the company’s total profit. “It was a key quarter for AWS, with the new Amazon Nova and even a new quantum chip being announced,” he said. “Amazon is doing well across the board, but questions persist around how much the economic uncertainty will affect it going forward.”

As for Amazon’s advertising business, revenue there soared 19% to $13.92 billion, surpassing the analysts’ consensus of $13.74 billion.

That number was likely reassuring to investors, as the online ad business is currently under scrutiny as a result of Trump’s trade policies. If retailers are expecting to sell fewer products due to the tariffs, it’s likely they’ll slash their advertising budgets.

Amazon’s rivals in the ad business, including Google and Snap Inc., both warned last week that businesses may tighten their marketing budgets due to the tariffs.

Today’s after-hours drop means Amazon’s stock is down more than 13% in the year to date.

Photo: SiliconANGLE