AMZN rises as earnings increase, AWS builds AI momentum

Amazon (Amzn) late Thursday reported third-quarter earnings and revenue growth that beat Wall Street estimates. Amazon shares rose on Friday, especially after the tech giant announced deal momentum for its cloud services business.

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

For its closely watched Amazon Web Services Cloud business, Amazon posted a 12% year-over-year sales increase to $23.1 billion. This exceeded analysts’ expectations for sales of $23.2 billion.

CEO Andy Jassy acknowledged that companies are still making “cost optimizations” to reduce their spending on cloud software. But he added that AWS’s dealmaking picked up late in the quarter and this month, with a “surprising” uptake of its generative AI products.

“Companies moved more slowly in an uncertain economy in 2023 to close deals,” Jassy said. “But we are seeing an increase in the pace and volume of closed deals. We are encouraged by the strength in the last two months in new deals signed.”

This calmed investors’ fears. Amazon stock jumped more than 5% in after-hours trading after the call. On the stock market today, Amazon stock rose more than 5% to 125.75 in early trading.

Amazon highlights momentum

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.

Amazon stock rose after hours despite losing revenue for its important cloud business. Notably, the failure of Google’s cloud business led to a decline in the stock the alphabet (Google) earlier this week.

AWS has long been a major profit driver for the company. To that point, AWS’s third-quarter operating income had jumped 29% year over year to $6.98 billion. This easily exceeded Wall Street estimates of $5.6 billion.

However, cloud revenue confirmed some Wall Street analysts’ expectations that AWS sales growth would remain relatively flat from the previous quarter. AWS revenue also grew 12% year over year in Q2, compared to 27.5% year over year growth in Q3 2023.

Feedback from both Google and Microsoft indicated that enterprise customers were still reducing their software spending. AWS is the world’s largest cloud services provider, followed by… Microsoft (MSFT) and Google.

Amazon AI Payment

But Jassy highlighted that customers are using its generative AI products, an important point given that Microsoft, its biggest cloud competitor, is spending big on this interesting technology.

“At our best estimates, the amount of growth we’re seeing and the absolute amount of generative AI work we’re seeing compares very favorably to anything else I’ve seen externally,” Jassy said.

Amazon struck a deal in September to invest up to $4 billion in Anthropic, a competitor to OpenAI, the creator of ChatGPT. Furthermore, in April Amazon launched Amazon Bedrock, a service that allows Amazon’s AWS users to create generative AI applications.

“We view AWS’ stable Q3 as a better result than we feared and believe investor expectations have migrated below consensus ahead of results,” Wedbush analyst Scott Devitt wrote. “Management’s commentary on AWS was optimistic in our view and suggested a strong future customer pipeline as well as $10 billion in potential AWS revenue generated by AI over the next several years.”

Amazon shares: Advertising business is booming

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

The e-commerce giant raised $34.3 billion from third-party sellers, compared to analysts’ expectations of $33.4 billion.

Advertising was once again Amazon’s fastest growing division. The company achieved $12.1 billion in advertising revenue, an increase of 26% over the same period last year. Analysts had expected $11.6 billion.

Before its earnings report, Amazon stock was up 42% this year. Shares lost 49% last year as the company posted a loss for the year.

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

Amazon has an IBD Composite Rating of 83 out of 99. The best growth stocks have a Composite Rating of 90 or better, according to IBD inventory check.

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