Amazon Surpasses Earnings Expectations, Emphasizes AI as the Future for Success

Amazon (AMZN) is making waves in the realm of artificial intelligence (AI).

Following a strong earnings report on Thursday, which exceeded expectations, Amazon’s stock surged over 7% on Friday. The bullish sentiment surrounding the company’s AI initiatives contributed to this increase.

During the earnings call, CEO Andy Jassy emphasized the potential of AI for Amazon’s cloud business, Amazon Web Services (AWS), estimating it to be a “tens of billions” opportunity. This year, AWS launched Bedrock AI, a service designed to simplify the development of large language models.

Jassy stated, “Our generative AI business is growing very, very quickly.”

Last September, Amazon invested $1.25 billion in Anthropic, a competitor to Open AI. This investment could potentially increase to $4 billion in the future.

AI holds the promise of significant growth for AWS. Although the division’s Q3 net sales of $23.06 billion fell slightly short of analysts’ expectations, the year-over-year sales growth of 12% and the 29% increase in operating income demonstrate positive momentum. Jefferies analyst Brent Thill commented, “That 12% growth is ‘just enough to keep the goblins away.'”

The recent cloud results from various companies have been mixed, making Jassy’s comments all the more notable. Microsoft reported better-than-expected growth in its Azure cloud business, while Alphabet’s cloud growth numbers disappointed.

Growth in AWS has been closely scrutinized this year, with JPMorgan’s Doug Anmuth noting investor interest in this area. Amazon CFO Brian Olsavsky referred to AWS as being in a “delicate” transition, rather than experiencing a complete stall in growth. The company is focusing on serving more customers and maximizing its services, gradually reducing its cost-cutting efforts.

The earnings rundown

Here are the key numbers that Amazon reported, compared to analysts’ expectations:

  • Net sales: $143.08 billion (actual) vs. $141.56 billion (expected)
  • AWS net sales: $23.06 billion (actual) vs. $23.13 billion (expected)
  • Earnings per share: $0.94 (actual) vs. $0.58 (expected)
  • Operating margin: 7.8% (actual) vs. 5.46% (expected)
  • Q4 net sales: $160-167 billion (actual) vs. $166.57 billion (expected)

Analyst recommendations for Amazon currently include 63 Buys, two Holds, and zero Sells.

As we look ahead, the operating margins will be crucial to monitor. Amazon has shown an increase in operating margins, rising 32% from Q1 to Q2 and surpassing expectations in Q3. This suggests that the company’s efficiency efforts post-pandemic have been effective. Wedbush’s Scott Devitt noted that during periods of rising operating margins, Amazon shares have historically appreciated significantly, highlighting the importance of this metric.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.

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