Amazon.com (AMZN) closed Friday at $270.64, down 1.2%, bucking a record-setting day for the broader market. The S&P 500 rose 0.21%, the Nasdaq added 0.20%, and the Dow Jones Industrial Average climbed 0.72% to all-time highs, fueled by continued enthusiasm for artificial intelligence stocks.
The e-commerce and cloud computing giant's decline came despite a major win for its Amazon Web Services (AWS) division: a five-year, $6 billion deal with data software firm Snowflake (SNOW). Snowflake shares skyrocketed more than 33% after the announcement, which also included an upgraded annual revenue forecast. The agreement allows Snowflake to leverage Amazon's custom Graviton chips, designed for cloud computing efficiency.
Investors have long viewed AWS as Amazon's primary vehicle for capitalizing on the AI boom. However, Friday's trading suggested that the market is increasingly focused on the company's hefty capital expenditures. Amazon's free cash flow over the past twelve months slipped to $1.2 billion, largely due to a $59.3 billion surge in property and equipment spending tied to AI investments. This spending, while positioning the company for future growth, has raised concerns about near-term profitability.
"Euphoric sentiment in the market around AI" is driving the rally, said Ohsung Kwon, chief equity strategist at Wells Fargo, in comments to Reuters. He emphasized that earnings are the key catalyst for the move. Snowflake's surge exemplifies this, as Matt Britzman, senior equity analyst at Hargreaves Lansdown, noted that it shows "how quickly sentiment can turn" when AI boosts revenue.
Amazon's first-quarter results underscore AWS's central role. Net sales rose 17% to $181.5 billion, with AWS sales jumping 28% to $37.6 billion. Operating income reached $23.9 billion. CEO Andy Jassy highlighted that AWS's growth was its "fastest growth in 15 quarters." Meanwhile, retail remains a key focus, with Prime Day scheduled for June across 26 countries. Amazon guided for second-quarter net sales between $194 billion and $199 billion, and operating income from $20 billion to $24 billion.
Performance among peers was mixed. Microsoft (MSFT), a major competitor in cloud services, gained 5.4%. Alphabet (GOOGL), which also competes in cloud and digital advertising, dropped 2.5%. Walmart (WMT), a retail rival, slipped 2.7%.
The broader market context adds another layer of risk. Reuters reported that U.S. inflation accelerated at its fastest pace in three years in April, and Federal Reserve officials have highlighted price pressures from higher energy costs. This environment could weigh on expensive growth stocks, as higher discount rates reduce the present value of future profits.
For Amazon, the test ahead is whether robust AWS growth and a strong retail quarter in June can sustain investor confidence in a stock with a market capitalization near $2.94 trillion, even as the broader index reaches records without its participation.
