Amazon’s cloud division saw its revenue increase at the fastest rate in nearly three years, prompting a 14% rise in the company’s stock during after-hours trading—thanks to a better-than-expected revenue forecast for the quarter.
The company anticipates a rise in capital investments next year.
As businesses continue to invest heavily in artificial intelligence software, online retailers are seeing benefits. This surge in cloud demand is helping alleviate some challenges posed by a slowing e-commerce sector, especially as Amazon braces itself for a critical holiday shopping season amid global trade uncertainties that are affecting consumer confidence.
In after-hours trading, Amazon’s stock added about $330 billion to its market value. If it maintains this momentum during Friday’s official trading, it would mark the largest single-day gain for the company since 2015.
“AWS is experiencing growth not seen since 2022,” CEO Andy Jassy noted in a statement. He emphasized the strong demand for AI and core infrastructure and mentioned that efforts are underway to boost capacity.
Chief Financial Officer Brian Olsavsky indicated that the company expects to spend around $125 billion in capital for the full year, suggesting that more investments are on the horizon, albeit without providing further specifics. So far this year, capital spending has reached $89.9 billion, mainly directed toward AI initiatives.
Cloud revenue soars
Amazon Web Services, the cloud arm of the company, reported a 20% rise in revenue for the third quarter ending in September, surpassing the anticipated increase of 17.95%. This comes after a challenging week for Amazon marked by a significant AWS outage that impacted many popular websites and apps.
The company often faces criticism for being slow in AI development, which has contributed to it being one of the weaker performers among the seven largest tech companies.
“This report indicates that Amazon’s business is robust after a year of relative underperformance,” said Ethan Ferrer, an equity strategist at Zacks Investment Research. Despite the stock remaining largely flat this year, he noted, “the company’s core fundamentals have remained strong.”
According to data from LSEG, Amazon predicts total net sales of between $206 billion and $213 billion for the upcoming fourth quarter. Analysts had an average expectation of $208.12 billion.
Jassy, who usually maintains a more reserved demeanor, sounded enthusiastic during the analysts’ call. He expressed optimism about maintaining the current growth momentum and highlighted potential growth areas in both advertising and retail sales.
The impressive results from AWS, the leading cloud provider globally, coincide with similar growth announcements from Microsoft’s Azure and Google Cloud, which rank as the second and third largest players in the industry, respectively.
Microsoft, Google’s parent company Alphabet, and Meta, the owner of Facebook, have all shared plans to boost their annual capital expenditure by investing in chips and data centers.
Big Tech’s ongoing investment in AI
Jassy’s comments reflect sentiments echoed by other tech leaders, suggesting that major companies remain committed to AI investments despite Wall Street’s apprehensions regarding a potential bubble. Firms, including Amazon, are embedding AI into nearly every aspect of their operations in efforts to cut costs and enhance productivity.
Federal Reserve Chairman Jerome Powell remarked on Wednesday that he doesn’t view the current AI surge as a speculative bubble akin to the dot-com era. He noted that today’s AI leaders are generating profits and characterized investments in data centers, chips, and infrastructure as vital for economic growth, while also cautioning about the implications for the labor market.
AWS contributes just over 15% of Amazon’s overall revenue, yet it accounts for around 60% of the company’s operating profit, underscoring its significance as a profit driver. The division saw 17.5% revenue growth in the previous quarter.
Advertising also performed well, with a 24% year-on-year increase, reaching $17.7 billion. Amazon is keen on enhancing its sponsored product offerings and is looking for new opportunities to increase ad placements, such as in Echo Show screens and advanced grocery shopping carts.
Recently, Amazon sought $1.8 billion in severance amid layoffs of 14,000 corporate positions, part of a broader plan that may result in around 30,000 job cuts overall. The company added approximately 32,000 employees between the second and third quarters this year, raising its total workforce to 1.58 million.
Jassy mentioned that the layoffs aren’t primarily financially driven nor a direct result of AI advancements. He pointed to cultural factors, stating that the company’s growth has led to excessive layers of management, which can hinder productivity.
The company’s earnings were additionally affected by a one-time $25 billion settlement with the Federal Trade Commission over accusations that it misled consumers regarding Prime memberships.
