Amazon stock sinks after its warning on AWS growth erases a post-earnings rally

• Amazon shares fell 5% Friday after the company warned about future revenue growth in its cloud division.
• That erased an earlier rally after-hours Thursday that could've added $135 billion in valuation to the tech giant.

Amazon's stock price fell Friday after a gloomy forecast about future growth in its cloud division wiped out an earlier post-earnings rally.

Shares were down 5% to under $105 at around 5 a.m. Eastern Time, having previously jumped as much as 12% in after-hours trading Thursday.

Those gains came after the tech giant posted quarterly earnings of 31 cents per share and revenue of $127.4 billion, beating the $124.5 billion target set by Wall Street, according to Refinitiv.

But shares slumped during a post-earnings conference call where executives warned of a likely slowdown in revenue growth at Amazon Web Services.

The cloud service's revenue grew 16% to $21.4 billion in the past quarter, beating analysts' $21.2 billion target, but Amazon executives said that could take a hit from some customers cutting their costs in preparation for a potential economic slump.

"As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter," CFO Brian Olsavsky told analysts.

"We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1," he added.

Both Olsavsky and CEO Andy Jassy said their long-term growth outlook for AWS remains strong – but that failed to reassure investors.

"People sometimes forget that 90-plus percent of global IT spend is still on premise and if you believe that equation is going to flip, which we do, it's going to move to the cloud," Jassy said.

Amazon's after-hours gains that were wiped out by the subsequent slump would have added around $135 billion to its total valuation had they held up until Friday's closing bell.

The stock had rallied just under 31% year-to-date before Thursday's earnings release – meaning it's one of the top-performing names on the benchmark S&P 500 but still lagging fellow tech giant Meta Platforms, which is up 98% in 2023.