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Amazon reported a double-digit rise in quarterly revenues on the back of strong demand for its advertising services and cloud business as artificial intelligence adoption grows, sending shares higher in after-hours trading on Thursday.
The Seattle-based company’s revenues increased 11 per cent year on year to hit $159bn, beating analyst estimates, and Amazon said on Thursday it expected net sales in the current quarter — which includes the holiday shopping season — to come in between $181.5bn-$188.5bn, in line with analyst forecasts for $186.4bn.
Net income of $15.3bn for the period was comfortably ahead of analysts’ estimates of $12.2bn, and up more than 50 per cent on a year earlier.
Sales at Amazon Web Services, a crucial profit engine for the ecommerce group, were up 19 per cent year on year, to $27.5bn, on the back of growing demand from AI businesses for its cloud computing services. Revenue from Amazon’s advertising business also jumped 19 per cent to $14.3bn.
Andy Jassy, Amazon’s chief executive, said recent retail events such as the company’s Prime Day had “significantly outperformed our expectations”, and that the company was “excited” for the holiday season.
Shares of Amazon, which are up almost 25 per cent in the year to date, rose more than 4 per cent in after-hours trading, which would push the company’s market valuation past $2tn.
Amazon’s market capitalisation has more than doubled over the past five years, propelled by growing cloud and advertising businesses, as well as expanding margins in its core retail business.
The group is now eyeing generative AI as the primary source of future growth. Amazon, which recently summoned workers back to the office for five days a week, is in a fierce race with rival “hyperscalers” Meta, Microsoft and Alphabet for a share of the booming AI market.
The companies have poured tens of billions of dollars into infrastructure and new projects to meet surging demand for AI tools. Amazon spent $22.6bn on property and equipment in the quarter, up from $12.5bn a year before.
Generative AI is “cloud 2.0”, said Gary Robinson, partner at Edinburgh-based asset manager Baillie Gifford, an Amazon investor. The technology had the potential to dramatically reduce operational expenditure and could ultimately create trillions of dollars of value, “expanding the total addressable market for hyperscalers by an order of magnitude”, he said.
But investors are looking for concrete evidence that the outlay will be recouped. Microsoft’s share price fell 6 per cent on Thursday, despite reporting double-digit gains in quarterly profits, after the company warned AI spending would continue to rise and said growth in its cloud division had cooled in the current quarter.
On the back of its results and Meta’s, US stocks suffered their worst day in almost two months on Thursday, with Big Tech companies dragging down the Nasdaq and S&P 500.
Amazon’s margins have also come under scrutiny. Wall Street reacted negatively to Amazon’s operating margins shrinking last quarter, but the company rebounded from 10 per cent to 11 per cent in the current quarter.