Amazon The latest financial report shows that its cloud business (AWS) revenue growth reached its fastest pace in nearly three years, helping the tech giant alleviate the pressure from the slowdown in its e-commerce business.
Amazon subsequently raised its quarterly revenue forecast, driving its stock price up nearly 14% in after-hours trading, which translates to an increase of approximately $330 billion in its market capitalization. If a similar surge occurs in Friday's regular trading session, it would be Amazon's largest single-day percentage gain since 2015.
Amazon CEO Andy Jassy stated in the earnings call, "AWS is growing at its fastest pace since 2022. We continue to see growth in artificial intelligence... " "And strong demand for core infrastructure, and we have been working to accelerate production capacity."
Amazon CFO Brian Olsavsky stated that full-year capital expenditures are expected to be around $125 billion, with further increases expected next year, but did not provide specific figures. In the first three quarters of this year, Amazon's total capital expenditures amounted to $89.9 billion, primarily for artificial intelligence projects.
This third-quarter financial report, ending in September, shows that
Amazon reported net revenue of $180.17 billion in the third quarter, compared to an estimated $177.82 billion.
Third-quarter operating profit was $17.42 billion, compared to an estimated $19.72 billion;
Net income for the third quarter was $21.19 billion; earnings per share for the third quarter were $1.95, compared to an estimated $1.58.
Amazon expects fourth-quarter net revenue of $206 billion to $213 billion, compared to market estimates of $208.45 billion; it expects fourth-quarter operating profit of $21 billion to $26 billion.
Cloud business revenue increased significantly
The most eye-catching part of this financial report is the strong performance of Amazon Web Services, Amazon's cloud business unit.
The financial report shows that AWS revenue increased by 20% year-on-year to $33.01 billion, marking the largest increase since 2022 , while the previous expected growth rate was 17.95%.
During the earnings call, Amazon CEO Eric Garcetti, who is usually composed, appeared unusually excited this time.
“I see our current momentum, and I believe we can maintain this growth for some time,” he added. “I think we can continue to achieve growth in multiple areas.”
Just a week ago, AWS experienced a prolonged outage, causing numerous popular websites and apps worldwide to malfunction. However, faced with AWS's strong growth figures, market investors seem to have quickly set aside their concerns about AWS.
“This report confirms that Amazon’s business is performing well after a year of relatively poor performance,” said Ethan Feller, equity strategist at Zax Investment Research. He stated that although Amazon’s stock price has been almost flat this year, “the company’s fundamentals have never weakened substantially.”
This year, Amazon has been the worst-performing stock among the "Big Seven" U.S. stocks, partly due to its long-standing reputation as a laggard in artificial intelligence development. However, this earnings report may help Amazon shed that label.
Currently, Amazon's AWS business is performing strongly and is already the world's largest cloud service provider. Microsoft follows closely behind. Azure and Google Cloud (the second and third largest companies in the industry) recently reported strong cloud service revenue growth.
Major technology companies continue to increase their investment in artificial intelligence
Jassi also stated that further investment would be made to meet the strong demand from AWS. This statement echoes that of executives from competitors ( Microsoft , Google's parent company Alphabet, and Facebook owner Meta), indicating that despite Wall Street's concerns about a potential investment bubble, large tech companies have no plans to slow down their investment in artificial intelligence.
Currently, many tech giants, including Amazon, are incorporating artificial intelligence into almost every aspect of their operations in an effort to reduce costs and increase productivity.
Amazon's AWS division typically accounts for about 15% of its total revenue, but currently, it is a huge source of profit for the company, accounting for about 60% of its total profits.
Besides AWS, Amazon's advertising business is another highlight. The division's revenue grew 24% year-over-year to $17.7 billion. Amazon has been increasing its investment in sponsored product listings and exploring new avenues to boost advertising, such as Echo Show screens and high-tech shopping carts.
Jassi stated that Amazon's AI shopping assistant Rufus already has 250 million active customers this year, with monthly users growing by 140% year-on-year, and is expected to generate an additional $10 billion in sales annually in the future.
Layoffs are for streamlining the structure
On Tuesday, Amazon announced it would be cutting 14,000 jobs. The company will pay $1.8 billion in severance packages.
Jassie stated, "The layoffs were not purely for financial reasons, nor were they driven by artificial intelligence; rather, they were determined by the company culture."
He pointed out that Amazon's expansion has led to too many layers of employees, "which could slow down the company's growth."
In addition, a one-time $25 billion charge also impacted the performance. This charge was for a settlement with the Federal Trade Commission that addressed allegations that Amazon had engaged in deceptive practices when marketing Prime memberships to consumers.
(Article source: CLS)
