Amazon Ventures into AI with $80M Perceive Acquisition Amidst Robust Q2 Growth and Drone Noise Concerns

As of last week, Amazon (AMZN) shares fell by 0.30%. Over the past week, the stock gained 6.06%, and year-to-date it has risen by 16.53%, with a market cap of $1.8583 trillion.

Amazon (AMZN.US) has announced an agreement to acquire chip maker and AI model compression company Perceive for $80 million in cash. Perceive is a subsidiary of Xperi (XPER.US) based in San Jose, California, specializing in edge inference solutions for large AI models on edge devices. Xperi holds approximately 76% of Perceive.

Amazon has become increasingly significant among hedge funds, with Bridgewater Associates recently increasing its Amazon holdings by 1.5977 million shares, representing a significant rise of 152.47% from the previous quarter. This indicates strong investor confidence in Amazon's future growth potential. Besides Amazon, the hedge fund also raised its stakes in Microsoft and AMD while trimming positions in Google, Nvidia, and Apple.

Amazon's drone delivery service is facing noise complaints, similar to those seen with Alphabet's Wing delivery drones. Amazon is seeking FAA approval to expand its drone delivery operations from College Station to Tolleson, Arizona. Residents, such as dentist John Case, compared the drone noise to "a giant beehive," measured between 47 to 61 decibels, akin to typical suburban night noise levels.

According to Mayor John Nichols of College Station, residents adjacent to Prime Air facilities have expressed frustration over the noise during drone takeoffs, landings, and some delivery operations. Amazon expressed its gratitude for the feedback and assured that it considers local input when making Prime Air operational decisions.

Recently, in its Q2 2024 earnings report, Amazon reported net sales of $148 billion, up 11% year-over-year, and net income of $13.5 billion, a growth exceeding 100%. However, its e-commerce revenue for the quarter was $55.392 billion, below analyst expectations of $55.55 billion. Despite this, operating income remained robust at $5.4 billion.

Amazon's North American market generated net sales of $90 billion, with an operating income of $5.1 billion. International segments turned profitable with net sales of $31.7 billion, largely due to AWS, which reported sales of $26.3 billion and operating income of $9.3 billion, albeit with a margin reduction to 36%. AWS capital expenditures for the quarter surged by 50% to $17.6 billion, covering logistics networks and AI-supporting infrastructure.

Amazon's advertising revenue grew by 20% to $12.771 billion, though it fell short of market expectations of $13 billion. Additionally, third-party seller services revenue increased by 13% to $36.201 billion, subscription services by 11% to $10.866 billion, and physical store sales by 4% to $5.206 billion.

Amazon provided a cautious Q3 outlook, forecasting revenues between $154 billion and $158.5 billion and operating income of $11.5 billion to $15 billion. This conservative guidance disappointed investors and led to some market skepticism.

During the earnings call, Amazon executives highlighted ongoing economic weaknesses in the U.S. and cautious consumer spending patterns, particularly on discretionary and higher-priced items like electronics and televisions.

Amidst competition from emerging platforms like Temu and SHEIN, Amazon is working to solidify its market position. In June, Amazon hosted a closed-door meeting in Shenzhen with some key suppliers and sellers, launching a "low-price store" project targeting budget-conscious international consumers with a fully managed logistics operation.

Amazon also increased its investment in membership services, offering U.S. Prime members a $120 Grubhub membership and expanding the Prime prescription service RxPass, allowing members to purchase 60 prescription drugs for a flat monthly fee of $5. Moreover, Amazon's 10th annual "Prime Day" saw substantial discounts, with first-day sales reaching $7.2 billion. Amazon CFO Brian Olsavsky noted the increasing spending and purchasing frequency of Prime members.