Good day, everyone, and welcome to the Amazon.com Quarter Two 2023 Financial Results Teleconference. For opening remarks, I will be turning the call over to the Vice President of Investor Relations, Dave Fildes. Thank you, sir. Please go ahead.

Hello, and welcome to our Q2 2023 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2022. Our comments and responses to your questions reflect management's views as of today, August 3, 2023 only and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce and cloud services, and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructurings or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now I'll turn the call over to Andy.

Thank you, Dave. Good afternoon, everyone, and thanks for joining us. Today, we are reporting $134.4 billion in revenue and $7.7 billion in operating income, both of which exceeded the top end of our guidance ranges. We're encouraged by the progress we're making on several key priorities, namely: lowering our cost to serve in our stores business; continuing to innovate on and improve our various customer experiences; and building new customer experiences that can meaningfully change what's possible for customers in our business long term. I'll start with our ongoing effort to lower our cost to serve in our stores' fulfillment network. Q2 saw another meaningful improvement in this area as we have steadily made progress for the last several quarters. Central to our efforts has been the decision to transition our stores' fulfillment and transportation network from one national network in the United States to a series of eight separate regions serving smaller geographic areas. We keep a broad selection of inventory in each region, making it faster and less expensive to get those products to customers. Regionalization is working and has delivered a 20% reduction in number of touches for our delivered package, a 19% reduction in miles traveled to deliver packages to customers and more than 1,000 basis point increase in deliveries fulfilled within region, which is now at 76%. This is a lot of progress. Sometimes I hear people make the argument that Amazon is chasing faster speed while driving its costs higher and where it doesn't matter much to customers. This argument is incorrect. There are two things to note. First, customers care a lot about faster delivery. We have a lot of data that shows when we make faster delivery promises on a detail page, customers purchase more often, not just a little higher, meaningfully higher. It's also true that when customers know they can get their items really quickly, it changes their consideration of using us for future purchases too. Second, when shipments come from fulfillment centers that are closer to customers, they travel shorter distances, which cost less in transportation, get there faster and is better for the environment. There's a lot of goodness in that equation. This ability to have shipments closer to customers is the result of a lot of work and invention on the regionalization side, placement logic and local in-stock algorithms. It's also driven by our development and expansion of same-day fulfillment facilities, which is our fastest fulfillment mechanism and one of our least expensive, too. Our same-day facilities are located in the largest metro areas around the U.S., so our top-moving 100,000 SKUs, but also cover millions of other SKUs from nearby fulfillment centers that inject selection into these same-day facilities and have a design that streamlines getting items from order to being ready for delivery in as little as 11 minutes. The experience has been so positive for customers in our business that we're planning to double the number of these facilities. We believe that we are far from the law of diminishing returns and improving speed for customers. While we're seeing strong early results from this regionalization effort, we still see several ways in which we can be more efficient in this structure and we believe will improve productivity further. We've also reevaluated virtually every part of our fulfillment network this past year and see additional structural changes we can make that provide future upside. We're excited about this cost to serve improvement, but also remain maniacally focused on making customers' lives easier and better every day and relentlessly inventing to make it so. This means constantly trying to improve experiences that we can deliver to customers short and long term. This customer experience work is at the heart of what we do every day across every one of our businesses. And I can spend an hour on this call detailing various examples across the teams. For today, I'll just focus a bit on our stores and AWS businesses. For stores, our priorities continue to be providing customers with great selection, low prices and convenience. And as we've discussed, we've been especially focused on providing even faster delivery speeds. Our speed of delivery has never been faster. In this last quarter, across the top 60 largest U.S. metro areas, more than half of Prime members' orders arrived same day or next day. So far this year, we've delivered more than 1.8 billion units to U.S. Prime members the same or next day, nearly 4 times what we delivered at those speeds by this point in 2019. Lowering our cost to serve allows us not only to invest in these speed improvements, but also add more selection at lower price points. In particular, we're growing our selection in everyday essentials, enabling customers to avoid going out to get these items and both increasing our basket sizes and the frequency with which customers choose to shop with us. We now have more than 300 million items available with U.S. Prime free shipping, including tens of millions of items with free same-day and 1-day delivery. We're continuing to focus on providing great value with tens of millions of deals that help customers stretch their dollar a little more. For instance, in Q2 of 2023, we offered customers 144% more deals and coupons than we did in Q2 of 2022. Prime Day was similar. Amazon offered more deals than any past Prime Day event with a wide selection across millions of products. Prime members purchased more than 375 million items worldwide and saved more than $2.5 billion across the Amazon store, helping make it the biggest Prime Day ever. Next, a few words about AWS. AWS remains the clear cloud infrastructure leader with a significant leadership position with respect to number of customers, size of partner ecosystem, breadth of functionality and the strongest operational performance. These are important factors for why AWS has grown the way it has over the last several years and for why AWS has almost doubled the revenue of any other provider. I've talked to many AWS customers over the years and continue to do so. And while all these factors I mentioned have been big drivers of the business' success, AWS customers tell us that as importantly, they care about the very different customer focus and orientation in AWS compared to what they may see elsewhere. As the economy has been uncertain over the last year, AWS customers have needed assistance cost optimizing to withstand this challenging time and reallocate spend to newer initiatives that better drive growth. We've proactively helped customers do this. And while customers have continued to optimize during the second quarter, we've started seeing more customers shift their focus towards driving innovation and bringing new workloads to the cloud. As a result, we've seen AWS' revenue growth rate stabilize during Q2 where we reported 12% year-over-year growth. The AWS team continues to innovate and change what's possible for customers at a rapid clip. You can see across the array of AWS product categories where AWS leads in compute, networking, storage, database, data solutions and machine learning, among other areas, and the continued invention and delivery in these areas is pretty unusual. For instance, a few years ago, we heard consistently from customers that they wanted to find more price performance ways to do generalized compute. And to enable that, we realized that we needed to rethink things all the way down to the silicon and set out to design our own general purpose CPU chips. Today, more than 50,000 customers use AWS' Graviton chips and AWS Compute instances, including 98 of our top 100 Amazon EC2 customers, and these chips have about 40% better price performance than other leading x86 processors. The same sort of reimagining is happening in generative AI right now. Generative AI has captured people's imagination, but most people are talking about the application layer, specifically what OpenAI has done with ChatGPT. It's important to remember that we're in the very early days of the adoption and success of generative AI, and that consumer applications are only one layer of the opportunity. We think of large language models in generative AI as having three key layers, all of which are very large in our opinion and all of which AWS is investing heavily in. At the lowest layer is the compute required to train foundational models and do inference or make predictions. Customers are excited by Amazon EC2 P5 instances powered by NVIDIA H100 GPUs to train large models and develop generative AI applications. However, to date, there's only been one viable option in the market for everybody and supply has been scarce. That, along with the chip expertise we've built over the last several years, prompted us to start working several years ago on our own custom AI chips for training called Trainium and inference called Inferentia that are on their second versions already and are a very appealing price performance option for customers building and running large language models. We're optimistic that a lot of large language model training and inference will be run on AWS' Trainium and Inferentia chips in the future. We think of the middle layer as being large language models as a service. Stepping back for a second, to develop these large language models, it takes billions of dollars and multiple years to develop. Most companies tell us that they don't want to consume that resource building themselves. Rather, they want access to those large language models, want to customize them with their data without leaking their proprietary data into the general model, have all the security, privacy and platform features in AWS work with this new enhanced model and then have it all wrapped in a managed service. This is what our service Bedrock does and offers customers all of these aforementioned capabilities with not just one large language model but access to models from multiple leading large language model companies like Anthropic, Stability AI, AI21 Labs, Cohere and Amazon's own developed large language models called Titan. Customers, including Bridgewater Associates, Coda, Lonely Planet, Omnicom, 3M, Ryanair, Showpad and Travelers are using Amazon Bedrock to create generative AI applications. And we just recently announced new capabilities from Bedrock, including new models from Cohere, Anthropic's Claude 2 and Stability AI's Stable Diffusion XL 1.0 as well as agents for Amazon Bedrock that allow customers to create conversational agents to deliver personalized up-to-date answers based on their proprietary data and to execute actions. If you think about these first two layers I've talked about, what we're doing is democratizing access to generative AI, lowering the cost of training and running models, enabling access to large language models of choice instead of there only being one option, making it simpler for companies of all sizes and technical acumen to customize their own large language model and build generative AI applications in a secure and enterprise-grade fashion, these are all part of making generative AI accessible to everybody and very much what AWS has been doing for technology infrastructure over the last 17 years. Then that top layer is where a lot of the publicity and attention have focused, and these are the actual applications that run on top of these large language models. As I mentioned, ChatGPT is an example. We believe one of the early compelling generative AI applications is a coding companion. It's why we built Amazon CodeWhisperer, an AI-powered coding companion, which recommends code snippets directly in the code editor, accelerating developer productivity as they code. It's off to a very strong start and changes the game with respect to developer productivity. Inside Amazon, every one of our teams is working on building generative AI applications that reinvent and enhance their customers' experience. But while we will build a number of these applications ourselves, most will be built by other companies, and we're optimistic that the largest number of these will be built on AWS. Remember, the core of AI is data. People want to bring generative AI models to the data, not the other way around. AWS not only has the broadest array of storage, database, analytics and data management services for customers, it also has more customers and data store than anybody else. Coupled with providing customers with unmatched choices at these three layers of the generative AI stack as well as Bedrock's enterprise-grade security that's required for enterprises to feel comfortable putting generative AI applications into production, we think AWS is poised to be customers' long-term partner of choice in generative AI. We're also continuing to make meaningful progress in building new customer experiences that can meaningfully change what's possible for customers in our business long term. Amazon Business is one of our fastest-growing offerings with a $35 billion annual gross sales run rate. And the team is working hard to further build out the selection, value, convenience and features that business customers need. Buy with Prime is continuing to show a lot of progress. Merchants in early trials who use Buy with Prime saw their shopper conversion increase by 25% on average, which makes a real difference to their business. Also, merchants who participate in Prime Day activities, in aggregate, experienced a 10x increase in daily Buy with Prime orders during the sales event period versus the month before we announced Prime Day. It's frankly only been a short amount of time that we've decided to invest significantly in the health care market segment. A lot of what we tried before were smaller experiments. But we're pleased with Amazon Pharmacy doubling its active customers in the past year, and we're pleased with the response to RxPass, which enables Prime members to receive all of their eligible generic medications for just $5 a month and have them delivered free to their door. One Medical has been part of Amazon for just a few months now and we're encouraged by what we're seeing there, too. Our grocery business continues to grow. We already have a very large business in non-temperature-controlled areas like consumables, pet food, beauty and canned goods that continues to grow as we keep increasing speed and lowering our cost to serve, which allows us to sell more items more cost-effectively. Whole Foods continues to lead the organic grocery space, is growing at a healthy clip and has meaningfully improved its profitability in the last year. We're pleased with what we're seeing with Whole Foods. And as I've shared before, we're working on new formats in our mass physical store offering, Amazon Fresh, having significantly improved the number of the key business inputs and just rolled out new concepts in stores. We also see substantial innovation and progress in other areas like Kuiper, Zoox and Alexa. We're still relatively early in many of our investments with technological inventions that are changing what's possible to deliver for customers in these areas, but they're big long-term opportunities that we remain optimistic about. Finally, I want to recognize our teams on being named number one in LinkedIn's Top Companies to Grow your Career in the United States. It's a testament to our work to be a great employer with leading compensation benefits and upskilling opportunities. With that, I'll turn it over to Brian.

Thank you, Andy. As Andy mentioned, we saw worldwide revenue of $134.4 billion, an increase of 11% year-over-year and above the top end of our guidance range. We are encouraged by the strength in our reported revenue, which is another proof point that our focus on price, selection and convenience continues to resonate with customers. We continue to see healthy demand across everyday essentials and in categories like beauty and health and personal care and have seen a positive customer response to improvements in personalization and enhancements to our website and mobile app. During the quarter, we also saw improvements in macroeconomic indicators across our North America and international segments, but continue to see customers trading down and seeking value in their purchases. Delivery speed has been a key area of focus over the last several quarters, and we reached record levels during Q2. Prime members love the faster ship speeds and are shopping more often. Advertising revenue remained strong, up 22% year-over-year. Our performance-based advertising offerings continue to be the largest contributor to our growth. Our teams worked to increase the relevancy of the ads we show to our customers by leveraging machine learning and improve our ability to measure the return on advertising spend for brands. Third-party unit mix increased to 60% during the quarter, the highest level we've ever seen, and we're continuing to see good growth in the number of sellers and the unit sold per seller. We're making steady progress on improving our worldwide stores profitability. Since North America segment operating margins bottomed out in Q1 of 2022, we have seen five consecutive quarters of improvement, with second quarter operating margin of 3.9%. This is an improvement of 620 basis points over these past five quarters. One of the largest drivers of this operating income improvement in the stores business has been reducing our cost to serve, with shipping costs and fulfillment costs continuing to grow at a slower pace than our unit growth. Most recently, regionalization is an important contributor. Faster delivery speed from better network connectivity and better inventory placement means less miles traveled and fewer touches, resulting in less cost. And while we are pleased with the progress we have made, we see more opportunity to drive improved cost efficiencies going forward. Moving to the international segment. Since our operating margin loss bottomed out in Q3 of last year, we have seen three consecutive quarters of improvement, with a second quarter margin loss of negative 3%. This is an improvement of 590 basis points over the last three quarters. This segment also includes our emerging countries. It is important to remember how early we are in some of these marketplaces. We've launched more than 10 countries in the past six years and are always evaluating our customer experience as well as our path to profitability, and we like the path we're on. As a reminder, it took us nine years to reach profitability in the United States. In addition, across our North America and international results, inflation headwinds also continue to ease, most notably in fuel prices, linehaul rates, ocean and rail rates. Moving to AWS. Year-over-year revenue growth was 12%, with growth rates stabilizing during Q2. We are encouraged by the strength of our customer pipeline and believe having a large diverse customer base that is mostly cost optimized sets us up well for future growth. On a trailing 12-month basis, free cash flow was positive and improved for the fourth sequential quarter. Our financial focus remains on driving long-term sustainable free cash flows. The largest driver of the recent improvement in free cash flow is our increased operating income, most notably in the North America and international segments where, as I said, we've made meaningful improvement in our fulfillment network productivity and operating leverage and benefited from moderating inflationary pressures. We've also seen improvements in our working capital contributions to free cash flow. Over the past couple of years, working capital hasn't been as efficient as we've held higher weeks of cover of inventory in the face of supply chain disruptions. Most recently, as these disruptions continue to ease, we are improving our inventory efficiency, resulting in improvements in our working capital. We will remain focused on continued free cash flow improvement moving forward. Next, let's turn to our capital investments. We define our capital investments as a combination of capital expenditures plus equipment finance leases. These investments were $54 billion for the trailing 12-month period ended June 30, down from $61 billion in the comparable prior year period. Looking ahead to the full year 2023, we expect capital investments to be slightly more than $50 billion compared to $59 billion in 2022. We expect fulfillment and transportation CapEx to be down year-over-year, partially offset by increased infrastructure CapEx to support growth of our AWS business, including additional investments related to generative AI and large language model efforts. With that, let's move on to your questions.

Our first question comes from Colin Sebastian with Baird.

I guess first on the fulfillment efficiency. Would be curious if you could give us a sense for how much of that optimization in the network with unit economics may have already been achieved in these numbers versus how much more you think is left to go. And related to that, I'm curious if you can leverage this reformulated network to help out with the grocery expansion. Or will that be limited to the stores and the specialized automated facilities you're building out?

I'll address that initial question. We are encouraged by our progress in fulfillment efficiency, particularly with regionalization and our efforts to manage costs as inflationary pressures ease. However, we still have work to do to restore our previous cost structure, viewing this as a part of our journey. We are pleased with the margin improvements we've observed, particularly over the last three to five quarters, but we recognize that we have a long way to go. Our teams are diligently focused on enhancing our fulfillment operations. Regarding grocery, as Andy has mentioned, our grocery business encompasses various aspects, including consumables, fresh goods, and Whole Foods. The same-day delivery service mainly impacts the consumables and everyday essentials segment.

I'll just add that I believe we can optimize and leverage our fulfillment network. Specifically, we can incorporate more items into our same-day facilities, allowing customers to add extra items at the last minute, including groceries for same-day delivery. You've likely noticed some of this already, and you'll continue to see more in the future. Over time, we'll also enhance our ability to allow customers to pick up various items from different grocery formats. Additionally, our grocery business has a unique infrastructure build-out that is optimized for its specific needs.

Our next question comes from the line of Mark Mahaney with Evercore ISI.

I'll limit myself to one question for each of you. It's been a couple of years since you've discussed Amazon Business. It seems there should be many more opportunities and likely a higher level of sales and bookings coming from that. So, Andy, can you talk about how significant a priority that is for you and what your growth strategy looks like? How do you plan to reach $100 billion? And then, Brian, regarding AWS, in the last two quarters, you've provided some foresight into AWS growth considering the discussions about moving beyond optimization into new workloads. Without needing a specific number, can you share the trends you're observing compared to the second quarter?

Yes, thanks, Mark. Let me address the second question. Reflecting on our last conference call, we reported a 16% growth in AWS revenue for Q1, but this rate has been declining throughout the quarter. Ultimately, we achieved a final growth rate of 12%. To put this in perspective, last year's Q2 revenue was nearly $20 billion, representing an increase of $2.4 billion. While that equates to 12%, it also involved significant cost optimization and new workloads from new customers. As customers engage in cost optimization, they may temporarily reduce their spending, which we've been supporting since the inception of AWS. Current trends show that while cost optimizations continue, they are slowing down, and some of our larger customers may have completed this phase. We are now observing a shift toward new workloads and business growth. We won't provide specific segment guidance for Q3, but I can say that the trends from Q2 have continued into July. Overall, we believe the business has stabilized, and we look forward to the latter part of the year and beyond, as we anticipate the release of new functionalities. There’s a significant investment in areas such as generative AI, large language models, and our existing machine learning solutions for customers. We feel optimistic and are beginning to see positive momentum with new volume from our customers.

Yes. I'll just underline one point Brian made and then quickly get to the Amazon Business point. Just if you think about the AWS business being an $88 billion revenue run rate business, to grow double digits on a business that size with the amount of cost optimizing that's been happening, to grow double digits, you have to be adding a lot of new customers and a lot of new workloads just to grow double digits. So when I talked about last quarter how I liked a lot of the fundamentals that we were seeing in the business with respect to customer pipeline, the new workloads, the migrations happening, what the team is rolling out functionality-wise, that's kind of what I'm talking about. And as we start to see cost optimization attenuate and more of the workloads, new workloads that people took those cost optimizations and actually started to plan come to fruition, not to mention what's coming with generative AI, there's a lot of growth in front of us on AWS. Just on your Amazon Business question, Mark, $35 billion annual run rate for gross sales is pretty strong growth. And if you look at it year-over-year, it continues to be very strong. But I like the way you're thinking, Mark, and it's almost like you're in some of the meetings that we're in where I asked the very same question. The team is working hard to build a $100 billion-plus business over time. And I think that the business has grown to be pretty large already, and I still think we only have a fraction of the features that we need to address more of the enterprise at this point. There's all sorts of companies ordering obviously from Amazon Business. But the bigger procurement workloads, there are certain features that you need to make them much easier in the way that companies are used to buying in those big procurements. And so we have a lot of features that we're adding. We have a number of service pieces that we need to add really around helping on big buys, do some of the service substantiations. And so we have a lot of functionality that we're very quickly adding to the mix here. But I don't think we're close to being done growing there, and that is a very strong area of focus for our stores team and for our senior leadership team as well.

And our next question comes from the line of Brent Thill with Jefferies.

Andy, just on AI monetization. Can you just talk to when you think you'll start to see that flow into the AWS business? Is that 2024? Do you feel like the back half, you'll start to see that as a bigger impact for the business?

Yes, that’s a great question, Brent. I would say that we've experienced significant business growth in AWS due to machine learning and AI over the past several years. This has largely manifested as compute usage, as customers engage in machine learning training and run their models in production using AWS compute instances. Additionally, we have over 20 machine learning services available that we've offered for a few years now. Regarding the anticipated surge in generative AI, which excites us as well, I believe we're just at the beginning stages. We're a few steps into a marathon, in my opinion. This technology is going to be transformative and will change nearly every customer experience we know. However, it is still early days. Many companies are still determining how to approach it, including how to train models, as they prefer not to develop their own large language models but instead want to adapt existing ones. Services like Bedrock facilitate that process. I expect this will have a huge potential, but it is more in the future.

And the next question comes from the line of Eric Sheridan with Goldman Sachs.

Thanks for all the detail in the prepared remarks around framing some of those key issues. Andy, maybe coming back to grocery. There's been a lot of coverage in the press around your grocery initiative in the last couple of days. When you take a step back, how much do you think about solving the grocery dynamic in the business to capitalize on it the way you want? Is it an element of things you need to build and the application of capital versus elements of executing on what's already in place and sort of aligning the assets in place against the scale of the Amazon Prime household in your customer base?

Yes, it's a good question. It's a little bit of both. I mean if I just step back and think about how we think about grocery, we continue to have this very big business in non-perishables, which is where a lot of the mass merchandisers started in grocery several years ago. So these are areas like consumables and canned goods and pet food and beauty and health. And as I said, it's a big business that's continuing to grow. But if you want to be able to serve more customers, which we do, and there are a whole number of reasons for that and customers want it, you have to have a strong physical presence. We started with Whole Foods, which is the pioneer in organic grocery; it continues to be, and we really like the way Whole Foods is growing. We've made a number of really important adjustments in the business, has changed its profitability trajectory over the last year. And we really like where that's headed and we're expanding that meaningfully. But if you want to be really broad, you have to have a mass physical format. We have been working on that for several years with Amazon Fresh. And I would say that we weren't pleased with the inputs, the progress on the inputs there. And the team has worked very hard over the last year to first start on the quality of the input, and that goes towards the quality of what we already had in place. And these are things like the right in-stock levels, the right cost structure, the right figures on things like obsolescence, just a number of the core inputs there, we just felt like we could be sharper and better. And I think that team has made up a lot of improvements. We have spent a lot of time thinking and rethinking how we want the formats to look. And we've just started rolling out some of those new formats, starting in our Chicago stores and then moving to our Southern California stores shortly thereafter. And you see added selection. You see added private brands. You see added well-known third-party brands like Krispy Kreme in coffee in the stores. You've seen a refined decor in the stores. You see refined dash cards that keep a running tally for people so they understand where they are at the moment wherever they're shopping, as well as refined self-service checkouts. And all those things, to me, are part of an effort we're trying to pursue to have a format in our mass Amazon Fresh stores that resonate more with customers. And we're hopeful that we will find that format and that it gives us the type of results that give us confidence to want to expand more broadly. But we won't expand unless we see that type of resonance. We're not just going to be on discipline. We're going to be thoughtful and disciplined about it. I do think also, you're starting to see across the team pulling some of the efforts together. So we have a number of different grocery offerings that I just talked about, just having a converged shopping cart for customers, which they have obviously wanted that I think will help them quite a bit. We're continuing to extend delivery to non-Prime customers as well. And so I think there are a number of opportunities for us over time to grow the business. We're optimistic that we'll be able to do so, but we're also being disciplined about not expanding the physical fresh stores until we have a format that we think is more resonant with customers.

And our next question comes from the line of Brian Nowak with Morgan Stanley.

I have two. The first one, Andy, on the last call last quarter, you talked about how you sort of talked about North America retail margins potentially getting to at or above pre-COVID levels. I think you said a margin around 4% and you're sort of talking now about investing more in grocery and expanding same-day and expanding that footprint. How should we think about sort of the forward slope of North America retail margins and sort of investing in some of these new initiatives in the retail business? Then the second one on AI. How high of an investment priority is it for you to improve your own retail and device network through more AI investments, potentially through logistics or AI-based agents, etc.? How large is that in the overall investment priority list?

I'll begin with the North America retail segment. I want to emphasize that we will not significantly increase the number of fresh stores until we have a concept that truly resonates with our customers and offers a favorable return on invested capital. I remain optimistic that we will discover that, but it will take time. Regarding same-day facilities, we anticipate this will positively impact the business. As I mentioned earlier, these facilities are among our most cost-effective fulfillment options. They allow us to deliver products quickly, and their smaller size means they can efficiently hold around 100,000 SKUs while also benefiting from nearby fulfillment centers that can provide an extensive selection. This enables us to manage several million SKUs for same-day or one-day delivery. Overall, these smaller facilities require less conveyance and streamline the process from picking to packing and shipping, enhancing efficiency overall. We believe expanding these facilities will improve both speed and demand while optimizing our cost structure. I still hold to my previous statement that we will return to the margins we had before COVID, and I believe there is even more potential for growth there. On the topic of AI, I can confirm that each of our business segments at Amazon is currently engaging in multiple generative AI initiatives. These efforts span improving our operational efficiency to enhancing the core customer experience across all areas of our business, including stores, AWS, advertising, devices, and entertainment. AI is integral to everything we do, and it represents a significant investment and focus for us.

Our final question comes from the line of Doug Anmuth with JPMorgan.

Just on AWS, as you lap optimizations and the macro-driven slowdown and you start to get the new workload deployment, how do you think about what normalized growth could look like for AWS in a better macro environment? And then secondly, helpful to get the just over $50 billion CapEx number for this year. Just curious how generative AI changes or could change your CapEx trajectory going forward.

That's a good question. I expect that cost optimization will keep happening, but I also anticipate a shift towards new workloads and migrations, as we saw in Q2. I believe this trend will continue over time. It's up to individual interpretations regarding the percentage of revenue growth. Achieving double-digit growth on an $88 billion revenue run rate while significant cost optimization is occurring, as companies worldwide look to save money, indicates that we are gaining many new customers and workloads. I'm very optimistic about AWS's growth over the next several years. While predicting any single quarter is challenging, I am confident about the medium to long-term prospects. Regarding the potential impact of generative AI on capital expenses, a substantial portion of our AWS capital expenditures is directed towards large language models and generative AI, and we are currently experiencing strong demand in this area. Historically, AWS has required more capital to meet increased demand because we need to invest in data centers and hardware upfront, which we then monetize over time. I would welcome the challenge of needing to invest more in capital for generative AI, as it would indicate that our customers are succeeding with our services. This is our best estimate for capital expenses at present, and we will provide updates if our outlook changes.

Thank you for joining us on the call today and for your questions. A replay will be available on our Investor Relations website for at least 3 months. We appreciate your interest in Amazon and look forward to speaking with you again next quarter.

Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.