Amazon (NASDAQ:AMZN), the e-commerce giant, experienced a remarkable boost in its stock price, surging over 7% early on Friday. This surge followed their above-expectation earnings report, accompanied by optimistic remarks regarding artificial intelligence (AI).
During the earnings call, CEO Andy Jassy discussed how AI holds the potential for Amazon’s cloud business, Amazon Web Services (AWS), amounting to “tens of billions.” This year, AWS introduced its Bedrock AI service, designed to streamline the development of extensive language models. Jassy expressed, “Our generative AI business is growing very, very quickly.”
In September, Amazon invested $1.25 billion in Anthropic, a rival to OpenAI, with the potential to increase the investment to $4 billion over time.
AI could potentially be the growth driver AWS needs. In the third quarter, AWS fell slightly short of analysts’ net sales expectations, reaching $23.06 billion compared to the expected $23.13 billion.
Nonetheless, there were bright spots, with AWS sales growing by 12% year-over-year, and the division’s operating income showing a robust increase to $7 billion, a roughly 29% surge from the previous year. As Jefferies analyst Brent Thill noted, this 12% growth is “just enough to keep the goblins away.”
This week has seen mixed results from cloud service providers, making Jassy’s comments even more significant. On Tuesday, Microsoft (NASDAQ:MSFT) reported better-than-expected growth in its Azure cloud business, while Alphabet’s (NASDAQ:GOOGL) cloud growth numbers were less impressive.
AWS’s performance this year has been closely scrutinized and has been a prominent topic of discussion among investors. As JPMorgan’s Doug Anmuth stated before the earnings release, Amazon CFO Brian Olsavsky mentioned that AWS growth is in a “delicate” transition, and the company is shifting its focus from cost-cutting to expanding its customer base and monetizing its services.
Key Numbers from Amazon’s Earnings Report:
Net Sales: $143.08 billion (actual) versus $141.56 billion (expected)
AWS Net Sales: $23.06 billion (actual) versus $23.13 billion (expected)
Earnings per Share: $0.94 (actual) versus $0.58 (expected)
Operating Margin: 7.8% (actual) versus 5.46% (expected)
Q4 Net Sales Guidance: $160 billion-$167 billion (actual) versus $166.57 billion (expected)
Currently, analyst recommendations for Amazon include 63 Buy ratings, two Holds, and zero Sells.
Looking ahead, watch for Amazon’s operating margins. Their operating margins have been on the rise, increasing by 32% between Q1 and Q2, and notably surpassing expectations in Q3. This suggests that Amazon’s efforts to improve post-pandemic efficiency have been successful. Wedbush’s Scott Devitt noted that Amazon’s shares have historically appreciated more when operating margins are on the rise, signaling a positive trend for the company.
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