AMZN earns higher revenue, AWS AI builds momentum

Amazon (AMZN) reported late Thursday that third-quarter earnings and revenue growth topped Wall Street’s estimates. Amazon stock rose on Friday, especially after the tech giant called for deal momentum for its cloud services business.




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During the quarter ending September, Amazon said Adjusted earnings of 94 cents per share. Revenue rose 13% year over year to $143.1 billion. Analysts expect Amazon to post adjusted earnings of 59 cents per share on revenue of $141.5 billion, according to estimates calculated by FactSet. In the same quarter last year, Amazon reported adjusted earnings of 28 cents per share and sales of $127.1 billion.

A closer look at the Amazon Web Services cloud business saw Amazon report a 12% year-over-year sales increase to $23.1 billion. It missed analysts’ expectations for sales of $23.2 billion.

Chief executive Andy Jassy acknowledged that companies are still making “cost optimizations” to reduce cloud software costs. But he added that the deal for AWS, later in the quarter and later this month, coincided with “surprising” progress for its developing AI products.

“Companies have moved slowly to close deals in an uncertain economy in 2023,” Jassi said. “But we’re seeing an increase in the pace and volume of deals closed. We’ve been encouraged in the last couple of months with new deals being signed.”

This allayed investors’ concerns. Amazon stock rose more than 5% in after-hours trading following the call. In the stock market today, Amazon shares rose more than 5% to 125.75 in early trading.

Amazon highlights speed

Amazon said it expects sales between $160 billion and $167 billion for the current fourth quarter. Analysts were looking for $167.1 billion, according to FactSet.

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Amazon stock rose after hours despite a revenue miss for its critical cloud business. Notably, a misstep for Google’s cloud business sent shares tumbling letters (GOOG) earlier this week.

AWS has long been a major profit driver for the company. At that point, Q3 operating income for AWS rose 29% year-over-year to $6.98 billion. That easily beat Wall Street’s estimate of $5.6 billion.

However, the cloud revenue confirmed some Wall Street analysts’ expectations that sales growth for AWS would be relatively flat from the previous quarter. AWS revenue also grew 12% year-over-year in the second quarter, compared to 27.5% year-over-year growth in the third quarter of 2023.

Comments from both Google and Microsoft indicate that corporate customers are still cutting back on software spending. AWS is the world’s largest cloud-services provider, followed by Microsoft (MSFT) and Google.

Amazon’s AI Push

But Jassy emphasized that customers are using the AI ​​products it’s developing — an important point given that top cloud rival Microsoft is spending heavily on the hyped technology.

“In our best estimate, the amount of growth we’re seeing and the sheer volume of AI business we’re seeing compares very favorably to anything else I’ve seen externally,” Jassi said.

Amazon signed a deal in September to invest up to $4 billion in Anthropic, a rival to ChatGPT-created OpenAI. Also, Amazon launched Amazon Bedrock in April, which allows Amazon’s AWS users to build scalable AI applications.

“We see AWS stability in 3Q as better than feared and believe investor expectations have migrated below consensus ahead of the results,” Wedbush analyst Scott DeWitt wrote. “Management commentary regarding AWS was encouraging in our view and suggested a strong customer pipeline in addition to the $10B+ of potential AWS revenue from AI over the next several years.”

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Amazon Stock: The ad business is booming

Meanwhile, Amazon’s e-commerce sales rose 7% to $57.3 billion. Wall Street analysts had forecast sales of $56.97 billion.

The e-commerce giant collected $34.3 billion from third-party sellers, compared with analyst estimates of $33.4 billion.

Re-advertising is Amazon’s fastest-growing segment. The company generated $12.1 billion in ad revenue, up 26% from the same period last year. Analysts were looking for $11.6 billion.

Before its earnings report, Amazon’s stock had risen 42% this year. Shares have lost 49% since the company posted a loss last year.

Also, Amazon stock has an IBD Relative Strength Rating of 88 out of a possible best of 99.

Amazon has an IBD composite rating of 83 out of 99. The best growth stocks have a composite rating of 90 or higher. IBD Stock Checkout.

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