Andy Jassy, CEO of Amazon, speaks at the ceremonial ribbon cutting prior to tomorrow’s opening night for the NHL’s newest hockey franchise the Seattle Kraken at the Climate Pledge Arena on October 22, 2021, in Seattle.
Bruce Bennett | Getty Images Sport | Getty Images
Amazon founder Jeff Bezos famously told rivals, “Your margin is my opportunity.” His successor as CEO, Andy Jassy, is telling Wall Street about opportunities to increase margin.
Jassy, who took the helm in mid-2021, has been laser focused on trimming costs across the company for over a year, eliminating 27,000 jobs since last fall, axing some riskier bets and reshaping Amazon’s fulfillment network to emphasize speed and efficiency.
Suddenly, Amazon is a profit machine.
In its third-quarter earnings report on Thursday, Amazon reported an operating margin of 7.8%, the highest since it reached a record of 8.2% in the first quarter of 2021. The company’s operating margin, which is the profit left after subtracting costs to operate the business, was 2% a year ago and has historically hovered in the low single digits. Bezos was perfectly comfortably running with a negative margin on occasion.
But the world has changed since early last year, when Wall Street turned on tech and an extended bull market came to a halt. Rising inflation and higher rates pushed investors out of risk and forced tech companies to resize.
Jassy used some form of the word optimize more than 20 times throughout the earnings call on Thursday. He was primarily referring to Amazon’s own cost-cutting endeavors or the efforts made by customers of Amazon Web Services to lower their cloud bills while maintaining or even improving performance.
When it comes to client spending, Jassy said things are starting to look a little better.
“While optimization still remains a headwind, we’ve seen the rate of new cost optimizations slowdown in AWS, and we are encouraged by the strength of our customer pipeline,” he said. AWS has experienced slowing growth in recent quarters but is seeing some “cost optimization attenuate,” especially as demand for generative artificial intelligence picks up, he said.
AWS revenue increased 12% in the quarter, a slower pace of expansion than what was reported by smaller rivals Microsoft Azure and Google Cloud.
Amazon’s stock initially seesawed after hours. But Jassy’s optimistic commentary on the call boosted the shares more than 5% to $125.98. Jassy and other Amazon executives spoke at length about the company’s progress when it comes to reining in costs.
Net income more than tripled to $9.9 billion, or 94 cents a share, from $2.9 billion, or 28 cents a share, a year earlier. Analysts were expecting earnings of 58 cents a share, according to LSEG, formerly known as Refinitiv. Revenue also beat estimates, climbing 13% to $143.1 billion.
The company pointed to a “regionalization” effort within its shipping operations that’s led to faster yet cheaper deliveries. Instead of operating as a national model, the company carved up its shipping network into eight regions, which means packages travel over shorter distances and are handled by fewer employees. That’s lowered the “cost to serve,” Jassy said.
Advertising services, which along with AWS delivers fatter profits than core retail, was key to the earnings bump in the third quarter. Revenue accelerated 26%, topping $12 billion. Ad growth is primarily driven by third-party sellers and brands that pay to have their products appear higher in search results on Amazon’s website and app, CFO Brian Olsavsky said.
Jassy said the ad business is also getting a big boost from the company’s deal with the National Football League. Amazon Prime Video is in its second season carrying “Thursday Night Football, and Jassy said ratings through the first six weeks are up 25% from last year.
“We’re also doing much better on the advertising side than we did in our first year, and that’s a property that’s really valuable,” Jassy said. “It’s the one game that week and advertisers want to be in front of customers because there’s 13 million customers a week watching.”
In terms of cutting costs, Jassy isn’t done. Amazon’s still being cautious on headcount by taking a slow approach to hiring, rehiring and filling open positions, Olsavsky told analysts.
Amazon’s spending on sales and marketing declined during the quarter from a year earlier, and the company has put in place better cost controls in “non-people categories” like infrastructure, Olsavsky added.
The European Union is so far the only jurisdiction globally to drive forward comprehensive rules for artificial intelligence with its AI Act.
Jaque Silva | Nurphoto | Getty Images
The European Union on Wednesday presented a plan to boost its artificial intelligence industry and help it compete more aggressively with the U.S. and China, following criticisms from technology firms that its regulations are too cumbersome.
In a press release, the European Commission, the executive body of the EU, outlined its so-called “AI Continent Action Plan,” which aims to “transform Europe’s strong traditional industries and its exceptional talent pool into powerful engines of AI innovation and acceleration.”
Among the ways Europe plans to bolster regional AI developments are a commitment to build a network of AI factories and “gigafactories” and create specialized labs designed to improve the access of startups to high-quality training data.
The EU defines these “factories” as large facilities that house state-of-the-art chips needed to train and develop the most advanced AI models.
The bloc will also create a new AI Act Service Desk to help regional firms comply with its landmark AI law.
“The AI Act raises citizens’ trust in technology and provides investors and entrepreneurs with the legal certainty they need to scale up and deploy AI throughout Europe,” the Commission said, adding the AI Act Service Desk will “serve as the central point of contact and hub for information and guidance” on the rules.
The plan bears similarities to the U.K.’s AI Action Plan announced earlier this year. Like the EU, Britain committed to expand domestic AI infrastructure to aid developers.
Hindering innovation?
The launch of the EU’s AI plan arrives as the bloc is facing criticisms from tech leaders that its rules on everything from AI to taxation hinder innovation and make it harder for startups to operate across the region.
The bloc’s landmark legislation known as the AI Act has proven particularly thorny for companies in the rapidly growing artificial intelligence industry.
The law regulates applications of AI based on the level of risk they pose to society — and in recent years it has been adapted to cover so-called “foundational” model makers such as OpenAI and French startup Mistral, much to the ire of some of the buzziest businesses in that space.
At a global AI summit in Paris earlier this year, OpenAI’s Chief Global Affairs Officer Chris Lehane told CNBC that European political and business leaders increasingly fear missing out on AI’s potential and want regulators to focus less on tackling risks associated with the technology.
“There’s almost this fork in the road, maybe even a tension right now between Europe at the EU level … and then some of the countries,” Lehane told CNBC’s Arjun Kharpal in February. “They’re looking to maybe go in a little bit of a different direction that actually wants to embrace the innovation.”
The U.S. administration has also been critical of Europe over its treatment of American tech giants and fast-growing AI startups.
At the Paris AI summit in February, U.S. Vice President JD Vance took aim at Europe’s regulatory approach to AI, stressing that “we need our European friends in particular to look to this new frontier with optimism rather than trepidation.”
“There is a real emphasis on easing the burden of regulation and removing barriers to innovation, which in part is likely to reflect some of the concerns that have been raised by the US government,” John Buyers, global head of AI at law firm Osborne Clarke, told CNBC over email.
“This isn’t only about the EU: If they are serious about eliminating legal uncertainties caused by interpretation of the EU’s AI Act, then this would be a real boost for AI developers and users in the UK and the US, as the AI Act applies to all AI used in the EU, regardless of where sourced.”
Musk, the world’s richest person, started going after Navarro over the weekend, posting on X that a “PhD in econ from Harvard is a bad thing, not a good thing,” a reference to Navarro’s degree. Whatever subtlety remained at the beginning of the week has since vanished.
On Tuesday, Musk wrote that “Navarro is truly a moron,” noting that his comments about Tesla being a “car assembler,” as much are “demonstrably false.” Musk called Navarro “dumber than a sack of bricks,” before later apologizing to bricks. Musk also called Navarro “dangerously dumb.”
Musk’s attacks on Navarro represent the most public spat between members of President Trump’s inner circle since the term began in January, and show that the steep tariffs announced last week on more than 180 countries and territories don’t have universal approval in the administration.
When asked about the feud in a briefing on Tuesday, White House press secretary Karoline Leavitt said, “Look, these are obviously two individuals who have very different views on trade and on tariffs.”
“Boys will be boys, and we will let their public sparring continue,” she said.
For Musk, whose younger brother Kimbal — a restaurant owner, entrepreneur and Tesla board member — has joined in on the action, the name-calling appears to be tied to business conditions.
Tesla’s stock is down 22% in the past four trading sessions and 45% for the year. Tesla has lost more tha $585 billion in value since the calendar turned, equaling tens of billions of dollars in paper losses for Musk, who is also CEO of SpaceX and the owner of xAI and social network X.
Even before President Trump detailed his plan for widespread tariffs, he’d already placed a 25% tariff on vehicles not assembled in the U.S. Many analysts said Tesla could withstand those tariffs better than competitors because its vehicles sold in the U.S. are assembled domestically.
But the company’s production costs are poised to increase because of the tariffs on materials and parts from foreign suppliers. Canada and Mexico are among the leading sources of U.S. steel imports, and Canada is the nation’s largest supplier of aluminum, while China and Mexico are home to major suppliers of printed circuit boards to the automotive industry.
At a recent an event hosted by right-wing Italian Deputy Prime Minister Matteo Salvini, Musk said, “Both Europe and the United States should move, ideally, in my view, to a zero-tariff situation, effectively creating a free trade zone between Europe and North America.”
Musk, whose view on trade relations with Europe stands in stark contrast to the policies implemented by the president, has a vested interest in the region. Tesla has a large car factory outside of Berlin, and the European Commission previously turned to SpaceX for launches.
Even before the tariffs, Tesla’s business was faltering. Last week, the company reported a 13% year-over-year decline in first-quarter deliveries, missing analysts’ estimates. That report that landed days after Tesla’s stock price wrapped up its worst quarter since 2022.
Musk, who spent roughly $290 billion to help return Trump to the White House, is now leading the Department of Government Efficiency, or DOGE, which has slashed costs, eliminated regulations and cut tens of thousands of federal jobs. In the first quarter, Tesla was hit with waves of protests, boycotts and some criminal activity that targeted vehicles and facilities in response to Musk’s political rhetoric and his work in the White House.
Satya Nadella, CEO of Microsoft, laughs as he attends a session at the World Economic Forum in Davos, Switzerland, on Jan. 23, 2020.
Denis Balibouse | Reuters
Apple‘s 23% plunge over the past four trading sessions has again turned Microsoft into the world’s most valuable public company.
As of Tuesday’s close, Microsoft is worth $2.64 trillion, while Apple’s market cap stands at $2.59 trillion.
While the market broadly is getting hammered by President Donald Trump’s sweeping tariff plan, Apple is getting hit the hardest among tech’s megacap companies due to the iPhone maker’s reliance on China.
The Nasdaq is down 13% over the past four trading days, as President Trump’s decision to impose tariffs on imports from more than 100 countries has sparked fears of a recession brought on by rising prices. UBS analysts on Monday predicted that the price of the iPhone 16 Pro Max could jump as much as $350 in the U.S.
Both Apple and Microsoft, along with chipmaker Nvidia, were previously valued at upward of $3 trillion before the recent sell-off.
In January, Microsoft issued disappointing revenue guidance. Nevertheless, last week, as Jefferies analysts reduced their price targets on many software stocks, they wrote Microsoft was among the “companies who we view as more insulated” from tariff uncertainty.