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Amazon (AMZN) shares are under pressure in extended-hours trading after the company issued operating income guidance of $13 billion to $17.5 billion, a wide range with the high end below Wall Street's estimates.
ROTH MKM managing director and senior research analyst Rohit Kulkarni joins Market Domination Overtime with host Julie Hyman and Yahoo Finance Markets Reporter Josh Schafer to share his instant reaction to Amazon's earnings print.
To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here.
for more reaction to Amazon earnings, we bring in Rohit Kulkarni, managing director and senior research analyst at Roth MKM. You heard us just talking about Amazon here and and the diversity of its business which at times is a real strength and superpower for Amazon, but at a time like this, Rohit does it mean that multiple different parts of its business are vulnerable at the same time?
Yeah, absolutely. I think the surface area of risk and the surface area of uh exposure to China tariffs and geopolitical and macroeconomic uncertainty that um Amazon has is unlike any other. So they they solve a complicated problem. They get rewarded for solving that. But when there is a complicated problem that presents itself, I think uh the complexity increases. I think in the release and the stock reaction I would just flag two things. One is uh after Microsoft, after meta, after Google, I think uh the expectations were slightly elevated. Uh the uh the beat was expected but uh raise was also expected. I think that's that that's what was the expectation going to the print. So I think in isolation these are really solid numbers, but Q2 guide as you exactly said Julie, uh the margin guidance is below expectations and we'll need to find out what's going on over there.
Rohit, Josh here. I'm curious with that second quarter operating income guidance, the range just sticks out to me, right? We're talking about 13 billion to 17 billion. I mean what do you make of the range and what do you think is going on there?
I think there are there are a couple of things that are one time in nature. So recently uh they started to launch these uh new satellites. Uh that has been something somewhat delayed, probably there is a one-time spend and how much they're going to spend on Kaiper and the entire kind of low earth orbit satellite launches that they're doing. I think that probably requires some explanation, but on top of that, uh probably there is around how much are they going to spend on AI and AI related kind of improvements across the entire spectrum of things. Amazon, we know is going to spend more than 100 billion in capex, that flows through the operating expenses and that starts to add a thicker layer of spend. So I think these two questions would probably help us understand. Is this a one time uh hit that the company is taking in margins, or is this something that as the year progresses, probably we got to add more spend. Uh and plus there is obviously the China tariff unknown that uh nobody knows how to solve that.
No, they do not. Uh Rohit two follow up questions there. One, do you think there is any risk that they will be cutting that CAPEX plan?
Uh so far what we have heard from the three uh other large companies, Google, again, meta and Microsoft, uh they are strong and long on AI. So I expect nothing else from Amazon as well. Um and and from a long thesis perspective, I think Amazon has the biggest uh again surface area of being the biggest beneficiary of AI going forward. They have the video platform, they have the advertising platform, they have the cloud platform and of course they have the e-commerce. No other company has the the the various different pillars where each of those pillars can benefit from AI and infrastructure spend. So I feel uh I think if any, in fact, just as how meta increased their capex yesterday, we wouldn't be surprised if Amazon also does the same today.
Uh and when we're talking about that operating income forecast, um put it in context for us. How does Amazon usually approach these forecasts? Does it tend to be conservative, you know, should we think, should we assume that they're going to come out and beat that forecast? How should we be thinking about that?
I think the the wider range probably uh implies there is there are certain one-time costs that they may or may not incur. That's my first interpretation, but historically, very rarely has Amazon missed on um on their operating income forecast, uh going back many, many quarters. So I feel there's an extra layer of conservatism and there's an extra layer of perhaps one-time items that they may be incurring, uh like the Kaiper launch I mentioned. So in my opinion, um street numbers would probably grind uh slightly higher and so if uh if we hear not too many negative things on the call like capex or whatnot, then we would be buyers of Amazon shares tonight in this weakness.
