Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Amazon reported a double-digit rise in quarterly revenues as it began to see gains from the “once in a lifetime opportunity” of generative artificial intelligence and strong advertising demand, sending shares higher in after-hours trading on Thursday.
As companies scramble to develop and implement generative AI tools, they are demanding more and more cloud capacity to store their data. That has presented “an unusually large, maybe once in a lifetime opportunity” for Amazon’s cloud business, said Andy Jassy, the company’s chief executive.
Sales at Amazon Web Services, a crucial profit engine for the ecommerce group, were up 19 per cent year on year, to $27.5bn. Jassy said AWS already had a “multibillion-dollar” AI business, which was seeing “triple digit” revenue growth, although he did not give specific figures.
The AI rush has also meant significant capital expenditure. Amazon spent $22.6bn on property and equipment in the quarter, up from $12.5bn a year before. “The faster we grow demand, the faster we have to invest capital in data centres and networking gear and hardware,” said Jassy, estimating that Amazon would spend $75bn this year and more next.
“Our customers, businesses and shareholders will feel good about this long term, that we’re aggressively pursuing it,” he added.
The Seattle-based ecommerce company’s overall revenues increased 11 per cent year on year to hit $159bn, beating analyst estimates. Amazon expects 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, and revenue from Amazon’s advertising business jumped 19 per cent to $14.3bn.
Shares of Amazon, which are up almost 25 per cent in the year to date, rose 6 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. 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.
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.
Generative AI is “cloud 2.0”, according to 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 also looking for 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.