Amazon’s stock jumps as AWS cloud growth accelerates – News

Shares of Amazon.com Inc. jumped more than 12% in extended trading today after it posted earnings and revenue that easily beat analysts’ expectations, driven by the strongest growth in years in its cloud computing business.

The company reported earnings before certain costs such as stock compensation of $1.95 per share, crushing Wall Street’s target of just $1.57 per share, while revenue gained 13% to $180.17 billion, ahead of the $177.8 billion forecast.

Operating income came to $17.4 billion, flat from the year prior, but that was primarily the result of a $2.5 billion fine paid to the U.S. Federal Trade Commission in order to settle charges regarding its “deceptive” Amazon Prime signup tactics. The company also spent about $1.8 billion on severance costs relating to “planned role eliminations” that were leaked to media earlier this week.

Overall, Amazon posted a net income of $21.2 billion in the quarter, up from $15.3 billion one year earlier.

As always, Amazon’s cloud business revenue was one of the most eagerly watched numbers, and investors were not disappointed. The Amazon Web Services Inc. business unit delivered $33 billion in sales during the quarter, up 20% from the same period last year and ahead of the Street’s $32.42 billion target.

Amazon’s cloud growth has come under scrutiny in recent months, as the company continues to face increased pressure from rivals Microsoft Corp. and Google LLC., whose cloud revenues rose by 40% and 34% respectively during their most recent quarters.

Though Amazon is still top dog in the cloud infrastructure world, there is a perception that it has missed out on some of the most lucrative artificial intelligence deals lately and that it should be winning more. Those concerns are one of the main reasons behind the sluggish performance of its stock this year. If today’s after-hours gains hold Friday, the stock will be up by a single percentage point in the year to date, trailing its peers.

AWS’ reputation also took a hit following a major outage just over a week ago that saw multiple websites and services taken offline globally for up to 15 hours in some cases. Microsoft’s Azure cloud and 365 services also suffered a major outage on Wednesday, although it was rectified sooner.

Still, there was good news Wednesday when Amazon announced the opening of its $11 billion Project Rainier AI data center, which was built to service Anthropic PBC’s Claude models exclusively. It shows that Amazon can compete in the AI infrastructure business, although Anthropic has also inked a multibillion-dollar contract with Google Cloud, too. Amazon Chief Executive Andy Jassy (pictured), in fact, called out its second-generation Trainium chip as “now a multibillion dollar business that grew 150% quarter over quarter.”

In a statement, Andy Jassy said AWS is now growing at a pace that hasn’t been seen since 2022, primarily thanks to demand for AI resources. “We continue to see strong demand in AI and core infrastructure, and we’ve been focused on accelerating capacity – adding more than 3.8 gigawatts in the past 12 months,” he said.

“Amazon has a deep moat around their core businesses driven by their unmatched scale and appears to have numerous healthy organic revenue growth opportunities driven primarily by their high-margin AWS cloud segment,” Jeffrey Wlodarczak of Pivotal Research Group wrote in a note to clients.

No let up on spending

Meanwhile, the company has doubled down on its plans to build even more data centers for AI. In a conference call with analysts today, Amazon Chief Financial Officer Brian Olsavsky said the company has increased its forecast for capital expenditure in fiscal 2025 from $118 billion to $125 billion. He said the company will likely spend even more in fiscal 2026. Although such big pending plans worried Microsoft and Meta investors Wednesday, they didn’t appear to mind when it comes to Amazon’s and Google’s spending.

Looking to the current quarter, Amazon is guiding for revenue of between $206 billion and $213 billion. The midpoint of that range came in ahead of the Street’s estimate of $208 billion. It’s also forecasting operating income of $21 billion to $26 billion, ahead of the $23.8 billion forecast.

Much of Amazon’s capex is being invested into AI, but it’s not only being spent on data centers. The company is also using AI to enhance automation and user experiences across all of its major businesses, including cloud, retail, devices and advertising. For instance, it recently debuted a chatbot for businesses called Amazon Q, and it continues to expand the Amazon Bedrock service for companies that want to develop their own generative AI applications and AI agents. In February, it launched Rufus, a shopping chatbot that’s able to answer questions about products and suggest items for users.

Jassy said on the conference call that more than 250 million shoppers have already interacted with Rufus, and claimed that 60% of those customers are “more likely to complete a purchase” when they do so.

Amazon’s AI investments are believed to be one of the factors behind its recent decision to let go housands of workers. On Tuesday, Amazon confirmed that it’s planning to lay off about 14,000 corporate employees, less than the 30,000 number that was first reported by media. Jassy addressed this on the call with analysts, saying they’ll help to make the company leaner and enable it to move faster. He insisted that the decision wasn’t a cost-cutting measure, nor was it driven by AI automation.

“It really is culture,” Jassy said. “If you grow as fast as we did for several years, you know, the size of the businesses, the number of people, the number of locations, the types of businesses you’re in, you end up with a lot more people than what you had before, and you end up with a lot more layers.”

Holger Mueller of Constellation Research Inc. told News the layoffs show that Jassy is confident Amazon will be able to keep up the renewed growth it displayed in the last quarter with fewer employees, and that confidence may also rub off on some of its customers, too. “It’s a sign that Amazon’s internal AI offerings are maturing, because Jassy would not shift the hand-to-machine ratio if its AI wasn’t ready to pick up the slack,” the analyst said. “This also signals to customers that the time is right to start investing in AWS’s AI offerings themselves.”

Amazon’s advertising business generated $17.7 billion in sales during the quarter, up 24% and surpassing the Street’s forecast of $17.34 billion, while its core online retail unit delivered $67.4 billion, up 10% from a year earlier. Third-party seller services contributed $42.4 billion, up 12%, while subscription services revenue came to $12.5 billion, up 11%.

Photo: Robert Hof/ News