Amazon reported robust second-quarter 2025 financial results on July 31, surpassing Wall Street expectations with sharp revenue growth and notable gains in key business segments. Yet, investor enthusiasm was tempered as the company’s shares dropped as much as 3% in after-hours trading, reflecting lingering concerns about retail headwinds and long-term spending plans.For the April-June period, Amazon posted revenue of $167.7 billion, climbing 13% year-over-year and outpacing analyst predictions of $162.1 billion. Earnings per share came in at $1.68, also topping the expected $1.33. Net income for the quarter reached an impressive $18.2 billion, more than a 10% increase from last year. Amazon’s financial outperformance stems from strong execution across several areas. Though its sprawling retail operations remain the largest part of its business, the real engine of profit growth continues to be Amazon Web Services (AWS), the company’s cloud-computing arm.AWS and AI power profitabilityAWS generated $30.9 billion in revenue, marking a 17.5% increase year-over-year and landing squarely in line with industry forecasts. The unit contributed $10.2 billion in operating profit—more than half of Amazon’s total $19.2 billion operating income for the quarter. This confirms AWS’s role as Amazon’s financial powerhouse, driven by surging demand for AI and cloud infrastructure as businesses accelerate technology investments.Chief executive Andy Jassy has spotlighted AI as a transformative force for Amazon, with the majority of 2025’s planned $100 billion in capital expenditures dedicated to expanding AWS’ capacity for generative AI and machine learning. As major clients move more workloads to the cloud and adopt AI-driven services, AWS remains positioned for long-term leadership, despite short-term margin pressures from its heavy investments.Retail and advertising show resilienceDespite ongoing concerns about tariffs and consumer spending, Amazon’s core online store sales grew 11% to $61.5 billion. The company’s third-party seller services also expanded, with revenue rising 11% to $40.3 billion. Physical stores, including Whole Foods, delivered a 7% increase to $5.6 billion, while subscription revenue—such as Prime memberships—rose 12% to $12.2 billion.Amazon’s advertising segment was a standout performer, raking in $15.6 billion in revenue, up 23% from the prior year. This ad business is becoming an increasingly critical pillar within Amazon’s profit structure, as brands compete for consumer eyeballs on the platform’s massive shopping interface.Challenges and outlookThe company is navigating a complex macroeconomic climate that includes inflation, changing trade policies, and labor market constraints. Shipping expenses climbed 6% to $23.4 billion, reflecting both global cost pressures and heightened demand for fast delivery.Although Amazon’s Q2 earnings don’t reflect the impact of July’s Prime Day—held after quarter’s end—the company remains optimistic, projecting third-quarter revenue in the range of $174 billion to $179.5 billion, above analyst expectations. Operating income is forecast between $15.5 billion and $20.5 billion.Meanwhile, Amazon’s headcount inched up 1% year-over-year to 1.55 million, with CEO Andy Jassy signaling further workforce streamlining as automation and generative AI gain traction internally. “Our AI progress across the board continues to improve our customer experiences, speed of innovation, operational efficiency, and business growth, and I’m excited for what lies ahead,” he said in the earnings press release.Investor responseDespite the upbeat earnings report, Amazon stock fell in extended trading, illustrating Wall Street’s wariness about continued retail volatility, capital-intensive growth, and competitive dynamics in cloud and AI. Still, analysts remain bullish on Amazon’s strategic direction, citing leadership in cloud innovation, resilient retail fundamentals, and an aggressive expansion into the future of artificial intelligence.For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing. This story was originally featured on Fortune.com