The paragraph is the introduction to Amazon's Q1 2025 financial results teleconference. The Operator introduces the call and hands it over to Dave Fildes, the Vice President of Investor Relations. Fildes welcomes attendees and mentions that the CEO, Andy Jassy, and the CFO, Brian Olsavsky, will be answering questions. Participants are encouraged to review the press release, which contains financial results and metrics for the quarter. All comparisons will be made against Q1 2024, and the management's views are current as of May 1, 2025. The call will include forward-looking statements, and actual results may vary. Additional information about financial impacts is available in the press release and SEC filings. Non-GAAP financial measures will also be discussed, with additional disclosures provided in the accompanying documents. Guidance reflects current order trends and assumptions.

The company's results are unpredictable due to factors like foreign exchange fluctuations, economic conditions, and customer demand. Despite these uncertainties, they report a revenue of $165.7 billion, a 10% increase from the previous year, with operating income also up by 20%. The company is focused on innovation and improving customer experiences, particularly in their stores business, where they offer a wide selection of brands and emphasize value and shipping speed. Notable partnerships include Oura Rings, Michael Kors, and luxury shopping with Saks, featuring brands like Dolce&Gabbana and Balmain. They are committed to keeping prices low, especially during uncertain times for consumers.

In Q1, the company hosted global sales events, saving customers over $500 million. They improved their fulfillment network by regionalizing it into hubs, which enhanced delivery speed and cost efficiency, and rolled out a new inbound architecture to better stock fulfillment centers. This led to record delivery speeds, particularly for same-day or next-day deliveries. Looking forward, they plan to refine the network further, expand same-day delivery sites, and enhance automation, as well as increase delivery stations in rural U.S. areas. The paragraph also briefly touches on the uncertainty surrounding potential tariffs on their store business.

The paragraph discusses Amazon's sales trends amidst potential tariff impacts. Despite no significant change in demand or retail pricing so far, some categories show increased buying, possibly due to anticipation of tariffs. Amazon's pricing strategy partly relies on forward buying practices by both first-party and third-party sellers. The paragraph highlights that tariffs may affect retailers differently, with China Direct Sellers potentially facing lower tariffs than those who rebrand and sell products acquired from China. Amazon sells a vast range of products, with Everyday Essentials growing rapidly and accounting for a significant portion of U.S. sales. The company's extensive selection allows it to adapt to market disruptions, evidenced by shifts in demand during events like the pandemic.

The paragraph highlights Amazon's strong market position due to its broad selection, low prices, and quick delivery, which have led to increased market share in uncertain times. It details the growth of Amazon Ads, which generated $13.9 billion in revenue in the quarter, up 19% year-over-year. Amazon Ads helps brands reach a vast audience of over 275 million in the U.S. through various platforms, including Prime Video, Twitch, and external sites. The company also provides advanced tools for advertisers to analyze and measure their marketing performance. Additionally, AWS experienced 17% year-over-year growth in Q1, contributing to an annualized revenue run rate of $117 billion.

The paragraph discusses Amazon's efforts to accelerate cloud adoption and AI integration. It highlights new AWS partnerships with major companies and acknowledges that the majority of global IT spending is still on-premises, predicting a shift to cloud infrastructure in the next 10 to 20 years. Amazon is aggressively investing in AI, evident in over a thousand AI applications across its services, the development of a new version of Alexa, and enhancements to its operations. AWS is empowering builders with extensive AI capabilities, including the new custom AI chip Trainium 2, to enable AI solutions across various businesses.

The paragraph discusses Amazon's advancements in AI technology, highlighting the cost-effectiveness and performance of their Trainium 2 chip and the Amazon Bedrock service for building Generative AI applications. Bedrock features a variety of foundation models, including those from Anthropic, Meta, and Amazon's own Nova models. The new speech-to-speech model, Amazon Nova Sonic, offers high accuracy for voice-based AI applications. Amazon emphasizes its commitment to reducing the cost of AI inference and supporting diverse AI applications, with notable clients such as Slack and Siemens using their technologies. The paragraph concludes by mentioning the potential for AI agents, though currently most applications are limited to question-answer scenarios.

The paragraph discusses the development and potential of Amazon's new AI model, Nova Act, which is designed to enhance the performance of AI agents in executing complex, multi-step tasks autonomously within a web browser. Nova Act aims to improve the accuracy of these tasks significantly, promising to increase it from the current 30% to over 90%. The model enables developers to break down workflows into reliable, detailed commands. The paragraph also mentions the release of Amazon Q, which supports AI agents in software development tasks such as feature development, code upgrades, and testing. Amazon's AI business is experiencing significant growth in revenue and is still considered to be in its early stages.

The paragraph emphasizes the ongoing transition from on-premises infrastructure to the cloud, highlighting the importance of infrastructure modernization for leveraging AI's full potential. It mentions the introduction of Alexa+, a more advanced version of the Alexa personal assistant, which is being rolled out in the U.S. and costs $99 per month for non-Prime members. The company is also involved in a joint venture to produce the next James Bond film, naming Amy Pascal and David Heyman as producers. Additionally, Project Kuiper has successfully launched its first satellite, with plans to offer service soon. The financial update from Brian Olsavsky reports a worldwide revenue of $155.7 billion, a 10% increase from the previous year, accounting for a $1.4 billion foreign exchange impact.

The paragraph reports the financial performance for the first quarter, highlighting a worldwide operating income increase of $18.4 billion, above expectations. North America and international segments both saw an 8% year-over-year revenue growth, with North America at $92.9 billion and international at $33.5 billion, excluding foreign exchange effects. The company focused on customer value, holding global deal events that enhanced engagement and record Prime delivery speeds due to better inventory placement. Third-party sellers contributed significantly, maintaining a 61% unit mix. North America's operating income was $5.8 billion (6.3% margin), and international's was $1 billion (3% margin). The results factored in one-time charges from unresolved customer returns and inventory costs anticipated before tariffs.

The paragraph discusses improvements and ongoing initiatives in Amazon's operations, particularly in North America and internationally. Without certain charges, operating margins would have been higher. Initiatives include improving the inbound network, expanding delivery systems, and using robotics for better inventory management and cost reduction. Advertising is highlighted as a key profitability driver with a 19% revenue increase. There's strong adoption of Amazon's advertising offerings. Amazon is also investing in long-term projects, such as the Kuiper satellite network, with recent successful satellite launches and more planned.

The company is actively monitoring the macroeconomic environment and taking measures to maintain low prices for customers amidst tariff impacts. In Q1, AWS reported a revenue of $29.3 billion, a 17% year-over-year increase, with an annualized revenue run rate exceeding $117 billion. Growth was observed in both Generative AI and non-Generative AI services as more companies migrate to the cloud. AWS achieved an operating income of $11.5 billion, with expectations of fluctuating margins due to varying investment levels. The company plans significant capacity expansion in the latter half of the year. Capital expenditures for Q1 were $24.3 billion, primarily to meet the demand for technology infrastructure, focusing on AWS, custom silicon, and enhancing their fulfillment and transportation network to support future growth and efficiency.

The paragraph discusses Amazon's financial performance and outlook. In the first quarter, Amazon reported a net income of $17.1 billion, including a $3.3 billion pre-tax gain from the conversion of convertible notes to preferred stock related to their investment in Anthropic. This gain is classified as non-operating income. For the second quarter, Amazon forecasts net sales between $159 billion and $164 billion, considering a potential headwind from foreign exchange rate changes. Operating income is projected to be between $13 billion and $17.5 billion, factoring in seasonal increases in stock-based compensation. Despite a complex external environment, Amazon emphasizes its focus on maintaining customer trust through competitive pricing, a wide selection, and convenience to create long-term shareholder value. The paragraph ends by opening the floor for questions, with Ross Sandler from Barclays being the first to inquire.

The paragraph discusses AWS's efforts to meet the increasing demand for AI workloads by expanding its infrastructure with more P5 GPU instances and Trainium 2 instances. Andy Jassy mentions that the AI business is generating a multi-billion-dollar annual revenue with triple-digit growth year-over-year. However, the business faces supply chain constraints, particularly in components like motherboards, which hinder AWS's capacity to meet demand fully. Jassy expects these supply issues to improve as the year progresses. The segment concludes with the introduction of the next question from Eric Sheridan of Goldman Sachs.

In the paragraph, Andy Jassy discusses the company's strategic focus amid global trade uncertainties. He emphasizes the importance of maintaining a broad product selection and keeping prices low for customers. To achieve this, the company is focused on efficient delivery and customer care. Strategies include forward-buying inventory and encouraging third-party sellers to stock items in advance. These efforts are aimed at stabilizing prices despite potential fluctuations in tariffs and trade policies.

The paragraph discusses the advantages of having a diverse and broad selection of products, particularly in the context of unpredictable market trends and potential tariff impacts. The speaker emphasizes that with over 2 million sellers, not all will react the same way to increased tariffs, with some choosing to absorb costs to capture market share. This diversity allows customers to find a wider variety of products and potentially lower prices. Additionally, the company has been strategically diversifying its production locations over the years, reducing its dependency on China for component manufacturing.

The paragraph discusses the factors impacting Amazon's customer protection strategies and financial guidance. Brian Olsavsky highlights the increase in stock-based compensation in Q2 and additional costs associated with the Kuiper project. He indicates these trends can be discerned from historical data. Justin Post from Bank of America raises a question about AWS revenues and their fluctuations. Andy Jassy responds by explaining that revenue variability is influenced by the sales cycle, especially for enterprises, and emphasizes the importance of having capabilities that attract startups to the platform.

AWS has been a key platform for many successful startups over the past 10 to 15 years, though predicting which will succeed, and when, is challenging. On the enterprise side, transitioning to the cloud involves convincing companies to move from on-premises solutions, selecting suitable projects, and sometimes integrating other services. The time taken for cloud migration varies among companies, but many find significant cost and innovation benefits, often expanding their cloud adoption process. The introduction of AI adds another layer of complexity with its rapid growth, especially in productivity and cost avoidance applications, as seen with AWS customers and within Amazon itself.

The paragraph discusses the rapid growth and development in AI, particularly in large-scale training models and coding agents like Cursor and Vercel, both using AWS infrastructure. It highlights the unpredictable and explosive growth of these technologies and suggests that AI is still in its early stages with many customer experiences yet to be transformed. The paragraph also emphasizes the significant growth rate of AWS, despite its already large revenue base, and anticipates further capacity improvements in the near future.

In the paragraph, Doug Anmuth from J.P. Morgan asks Brian Olsavsky about the factors driving Amazon Web Services (AWS) margin outperformance and future expectations, and Andy about encouraging more complex tasks with Alexa. Brian attributes AWS's strong margin performance to growth, innovation, and technology investments such as software improvements, custom networking, effective power usage, and custom silicon like Graviton. He notes that margins are influenced by various factors, including investment levels, competitive pricing, and the evolving mix of Generative AI services. Significant infrastructure investments are planned for the latter half of the year.

The paragraph discusses Amazon's recent advancements with Alexa, particularly the introduction of "Alexa+". The new version is more advanced, capable of taking actions beyond just answering questions, marking a shift towards a more interactive experience. The rollout began a few weeks ago, with over 100,000 users already accessing it, and more to come. The response has been positive, aiming to leverage the existing distribution of over half a billion devices. A key change is ongoing conversations where users need to say "Alexa" only at the start, making interactions more seamless. Andy Jassy indicates that initial user feedback is very positive.

The paragraph discusses a person's experience using Alexa and how it enhances convenience and efficiency. The speaker initially found it freeing not to repeatedly say "Alexa" for commands. They describe using Alexa for various tasks, such as controlling home devices and making dinner arrangements, which made the process seamless. The speaker highlights how Alexa provides a personal assistant experience, suggesting that as people become more accustomed to using such technology, they'll appreciate its capabilities. They also hint at future enhancements planned for Alexa. Following this discussion, the conversation shifts as an operator introduces a question from Brian Nowak of Morgan Stanley, who addresses Andy about the complexities and data insights of the retail business.

The paragraph discusses operational focuses for ensuring a smooth Prime Day, Thanksgiving, and holiday season amid tariff uncertainties. Andy Jassy highlights the importance of supporting sellers, maintaining diverse options, and offering low prices. He emphasizes managing inventory in fulfillment centers carefully to avoid productivity issues due to excess stock. Brian Olsavsky briefly adds that there may be ongoing considerations regarding costs similar to those highlighted in the first quarter.

The paragraph discusses various financial factors impacting a company's performance in Q2, including stock-based compensation, expenses related to the Kuiper project, and tariffs on retail purchases. The company made pre-buys of inventory in Q1, reducing tariff impacts for Q2. However, uncertainty in consumer demand and other factors have led to wider forecast ranges. Despite uncertainties, there are positive trends with strength in advertising and pre-buys in April. Additionally, Dave Fildes reports that the AWS backlog for Q1 is $189 billion, up 20% year-over-year, with an average contract life of 4.1 years. The company is monitoring enterprise migration to the cloud while considering AI's impact on this transition.

The paragraph discusses the evolving landscape of cloud adoption and AI integration by enterprises. Before the pandemic, there was a strong trend of companies moving their operations to the cloud for innovation, productivity, and cost benefits. The pandemic caused a focus on cost optimization, but the emergence of generative AI reignited interest in cloud workloads. Presently, enterprises recognize the need to balance traditional cloud migration with AI adoption, acknowledging that while some AI initiatives will succeed and scale, others may not. They are waiting for AI costs to decrease further. Additionally, there's renewed momentum for migrating infrastructure to the cloud to leverage these benefits.

In the paragraph, the speaker discusses the transformation of company infrastructure from on-premises to cloud, specifically on AWS. This transition, although typically a multi-year process, varies in pace among companies. It is done carefully to ensure applications continue to function properly. The speaker highlights successful conversations with companies choosing AWS for their infrastructure transformation. The session concludes with a note of appreciation for participation and information about a replay available on Amazon's Investor Relations website.

This summary was generated with AI and may contain some inaccuracies.