Amazon shares soared more than 11% in early trading on Friday, after strong growth from its cloud unit and an upbeat sales outlook allayed fears that the tech giant was falling behind its rivals in the AI race.
Amazon Web Services (AWS) revenue, the linchpin of the company’s recent investments in AI, rose 20% in the third quarter. While Microsoft Azure’s revenue grew by 40% and Google Cloud’s by 34%, the enormous scale of AWS magnifies its impact on growth.
Its cloud services revenue of $33 billion is more than double Google’s $15.16 billion.
Wall Street celebrated AWS’s turnaround, with analysts pointing to the earnings marking a potential turning point for Amazon.
“There was certainly concern about AWS potentially losing market share to Microsoft Azure and Google Cloud… But now AWS has also joined the trend and is seeing strong revenue growth,” said Jed Ellerbroek, portfolio manager at Argent Capital.
Ellerbroek said investors were expecting an AWS rally in the fourth quarter or early next year. “But it has already happened this quarter,” he said.
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Until Friday’s stock rally, Amazon shares had only risen 1.6% so far this year due to concerns about its market share and a lack of robust AI upgrades, making it the worst-performing company in the group of “Magnificent Seven” tech giants.
However, Friday’s gains are helping Amazon break out of that position and overtake Tesla and Apple. The electric vehicle company is up about 11% this year, including session-to-date moves, while Apple is up about 8%.
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Amazon CEO Andy Jassy stated Thursday that AWS is “growing at a pace we haven’t seen since 2022,” thanks to strong demand for AI and core infrastructure.
In response to growing demand, Amazon joined other big tech companies in projecting an increase in its capital spending next year.
“Amazon had one of the best performances this earnings season, dispelling any doubts about its ability to operate at scale,” said Farhan Badami, market analyst at eToro.
Amazon’s 12-month forward price-to-earnings (P/E) ratio stands at 29.63, above Alphabet’s 25.98, but below Microsoft’s 31.72.
Retail and advertising sector presented solid performance
The company’s retail and advertising businesses also posted strong performance.
“Amazon’s retail results were excellent. They grew 11% year-over-year. There is no other large retailer in the United States that is growing so fast,” said Jed Ellerbroek of Argent Capital.
While it represents a smaller portion of Amazon’s total operations, its advertising segment is growing rapidly. Sales for the business increased 24% to $17.7 billion in the quarter, thanks to the company’s efforts to expand advertising presence on its Echo devices, shopping carts and sponsored ads.
At least 23 brokerage firms raised their price targets for Amazon shares after the results were released.
With information from Reuters
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