Amazon's Incredible Q2 Earnings Report: What it Means for the AI Trade and Agentic Commerce...
In 5 years we will look back at Amazon's Q2 Earnings as a key milestone in the AI buildout and the path to Agentic Commerce dominance.
First, a Word on Micro and Macro Agentic Commerce
Most of what we cover in these digital pages, is the Micro picture - meaning very specific things in the our World of Agentic Commerce which is a huge opportunity in it’s own right. That being said, in this post, we’re going to cover both the Micro and the Macro for the first time really, so I wanted to first explain the ‘why’.
Everything we talk about here at Retailgentic around Agentic Commerce sits on top of an even bigger wave of innovation and capital, that I’ll call the AI Buildout which is supported by the Wall St. AI Trade. That’s the Macro. Let’s start at the Micro because that’s what you come here for and if you’re interested in the Macro, keep reading 😄
In this post we’re going to focus on two specific parts of Amazon’s Q2, if you want to do a complete deep dive, check out:
Jason and Scot Amazon Q2 Deep Dive→
Watch here→
Listen here→
(back to the post)
The Micro: Andy Jassy’s Comments on Rufus Alexa Shopping
On the Rufus side, there were four datapoints that were interesting. In typical Amazon style, they are ‘just enough’ to get you excited, but leave you with more questions than they answer.
The big four Alexa quotes were:
More than 350 million customers used Alexa Shopping during the past 12 months.
In Q2, active users nearly doubled, while interactions increased more than 5× year over year.
U.S. customers who use Alexa for Shopping spend more than 40% more per order.
Shoppers clicking a sponsored prompt converted to a sale 48% more often and spent 21% more on average than shoppers who did not.
This is amazing and it’s clear Alexa Shopping is doing really well. I’ve learned over 30yrs to listen to Amazon’s words, but to put 80% of the focus on their actions. The fact that in the last year we have prompt pills all over the discovery and PDP experiences and most recently we have
We’re going to be on-site at Amazon in mid August and here’s the questions we’re going to be looking to figure out answers for:
350m customers - Is this global/US? What % of customers does this represent?
Q2 2x active users and 5x y/y interactions - Was this 2x from Q1 or from year ago? Interactions - is that prompts, does it include clicks, etc?
Alexa Shopping AOV up 40% - Is there selection bias in here (you take amazon’s best clients, put them in a cohort, that’s an aov that’s 40% higher) - or there’s a more scientific ‘hold back group’ A/B test going on here?
Sponsored prompts - wow!, but again, selection bias?
As I said, I can tell there’s really something here, because of the actions, but I’d love to have the dots connected a lot more here.
Stay tuned, we’re on it. Now let’s zip back up to 30,000 ft for the Macro…
The Macro: Jassy Single-Handedly Shows Wall St the Clear Path to Huge ROIC on AI Spend
Jassy’s Legacy at Amazon
Foundational to this part of the story, is understanding just how much credibility and Jassy has with Wall St. Jassy isn’t an Amazon newbie, he started in 1997. Amazon urban legend has it that in 2003 he came to Bezos (or they co-developed the idea) for what would become AWS. This is now a huge driver of Amazon’s business. In 2016 he was officially tagged as CEO of AWS and then in July or 2021, Jassy took over the ‘main’ CEO gig.
In that period of time, Amazon spent more and more on Data centers and servers and Amazon showed them how the company has become world class at ROIC - return on invested capital. If you build a $2B data center, how much revenue does that produce over it’s life? What’s the break-even period? Jassy has 23yrs of proving out, via AWS that he is a great steward of investor’s capital and will invest it with an eye towards getting a payback as fast as possible.
Setup going into the call…
The big AI companies, Meta and Hyperscalers are spending so much on AI datacenter and GPUs that it has created a huge wall of worry on Wall St. that can be summarized as: “What if all this capital being deployed is a bubble? What if it' never generates an ROIC? The market has been searching for a clear sign that there is ROIC. Heading into Q2:
Google Announced -increased their capex and had a great, Q, but didn’t answer the questions the market has - neutral.
META Announced - Zuck basically said - I want to spend a lot more and to make it work, maybe we’ll do, I don’t know like enterprise apps and stuff! The market absolutely hated this - and 🤮 all over the place.
Microsoft Announced - this was better, Azure accelerated and Co-pilot seats increased an astounding 50% Q/Q to 30m. The market liked this, but still, it’s hard to tie this to AI spend - nobody connected the dots.
That’s how the table was set going into Amazon’s call, which I’m calling:
Jassy’s Shifts Into AI MAXXING Mode!
Amazon’s AWS results crushed expectations from a y/y growth, but on top of the revenue expansions/beat, margins EXPANDED. As if that wasn’t enough…
Jason and I have 37 of these Amazon quarterly recaps in the rear view window, we have only missed 2, yes 2 in the last 10 yrs. I listen to every conf call, study the transcripts, read at least 5, sometimes 10 wall st reports, read the annual letters and so on. In the Bezos and Jassy eras, I have never heard a call that had so much unbridled enthusiasm as this call. Written words take away a lot of the audio clues/’body language’, but with that back drop. Here are the biggest quotes from the call:
Booming - “Q2 was another very strong quarter for Amazon. I’ll start with AWS, which is booming right now, and I’ll share the numbers, what we think is going on and why we’re enthusiastic about the ROIC equation, even with heavy CapEx the next few years.”
ROIC? - “At this level of spend and higher, we have clear line of sight to strong financial returns.”
ROIC Dots…Connected! && Breakeven…revealed! - “For servers and networking equipment, on average, it takes a little less than 3 years to break even on that investment.” He added that the equipment has a useful life of at least five to six years, while most AI capacity is being contracted for at least five-year terms—creating significant free cash flow during the two to three years following breakeven.
AI vs. CPU correlation - “We see the margins and returns in AI tracking what we saw with core at the same point of evolution, actually a little ahead.”
Icing on the cake - “The resulting revenue, free cash flow and return on invested capital is very compelling.”
This chain of five statements was EXACTLY what Wall St. was looking for PLUS it was delivered by Jassy who has a world of credibility PLUS he delivered it with enthusiasm PLUS he delivered it extremely clearly and coherently.
The Icing on the Icing on the Icing on the cake….
As if that wasn’t enough, Jassy put the icing on the icing and said:
”We long believed AWS could become a few hundred-billion-dollar revenue business and now believe it will be at least double that, and very possibly be a $1 trillion annual revenue business for us in time”- Andy Jassy, Amazon CEO on the Q2 Conference Call (7/31/26)
Conclusion
To Summarize: Booming, ROIC, Breakeven, Accelerating revenue, growing margins and AWS could be a $1T business. Phew, that was a lot.
Today the market took a breather and there was other dramatic Google news (a topic for another day), but prior to that, Amazon was up 12% which at their ~$3T market cap is $360B (or more than 5 Target’s in market cap growth to put it in comparison).
On top of that Google, and Microsoft, the other Hyperscalers were up too, because Jassy helped show the ROIC on ALL AI investment, not just Amazon’s. I haven’t done the math, but that could be highest $/hr ever recorded in value created from that conference call.