reported strong third-quarter results, with profit soaring 55.2%, fuelled by robust growth in its cloud computing business, which energised investor sentiment.
The tech firm’s shares rose by about 6% in after-hours trading.
The Seattle-based company reported a bottom line of $15.3 billion in its third quarter ended September 30, 2024, compared with $9.9 billion earned in the year-ago period.
Its cloud computing platform, Amazon Web Services (AWS), posted an operating income of $10.4 billion in Q3, up 49.7% year-over-year (YoY). This represents nearly 60% of its parent’s operating income of $17.4 billion in the third quarter.
AWS contributes significantly to the company’s topline and bottom line.
Amazon President and Chief Executive Officer Andy Jassy said that AWS now stands at a $110 billion annualised run rate. “We have seen significant reacceleration of AWS growth for the last four quarters,” he noted during the third-quarter earnings call.
In Q3, Amazon’s net sales rose 11% YoY to $158.9 billion, while AWS segment sales increased 19% YoY to $27.5 billion.
Amazon leads the cloud infrastructure market, competing with Microsoft and Google. According to data from Synergy Research Group, their market shares were 32%, 23%, and 12% respectively, as of Q2 2024.
Earlier this week, Alphabet said Google’s cloud business witnessed a 35% YoY jump in revenue, touching $11.3 billion in Q3 FY24, while Microsoft said its Azure and other cloud services revenue growth was 33% in Q1 FY25. These cloud business growth numbers are fuelled by a strong adoption of artificial intelligence.
AI opportunity
Amazon, like the others, is tapping into this big AI opportunity.
“AWS’s AI business is a multibillion-dollar revenue run rate business that continues to grow at a triple-digit year-over-year percentage and is growing more than three times faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly,” Jassy remarked.
Tech giants like Amazon, Microsoft, Google, and Meta have significantly increased their capital expenditure to expand their server and data centre infrastructure, driven by the exponential growth of artificial intelligence (AI) and its demanding computational requirements.
“We have more demand that we could fulfil if we had even more capacity today. I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply,” Jassy noted.
“We are growing at a very rapid rate and have grown a pretty big business here in the AI space. And it’s early days, but I actually believe that the rate of growth has a chance to improve over time as we have bigger and bigger capacity,” he added.
Amazon Senior Vice President and Chief Financial Officer Brian Olsavsky said that the company expects to spend approximately $75 billion in capex in 2024.
Jassy expects Amazon’s spending to increase in 2025, with the majority allocated to AWS, particularly due to the rise in generative AI.
“Data centres, for instance, are useful assets for 20 to 30 years. And so, I think we have proven over time that we can drive enough operating income and free cash flow to make this very successful return on invested capital business,” Jassy explained.
“We expect the same thing will happen here with generative AI. It is a really unusually large, maybe once-in-a-lifetime type of opportunity,” he added.
Stores and other businesses
Net sales from Amazon’s online stores reached $61.4 billion, an 8% increase year-over-year, while physical store sales were $5.2 billion, up 5% YoY.
Alongside its cloud business, advertising emerged as a strong performer for the company, with ads services sales rising 19% YoY to $14.3 billion for the quarter. This business managed to exceed the growth seen in Amazon’s core retail segment.
Meanwhile, the subscription services witnessed an 11% YoY growth to $11.3 billion.
For the fourth quarter—its largest of the year—the ecommerce giant provided guidance. Net sales are expected to range between $181.5 billion and $188.5 billion, up 7% to 11% compared with the year-ago period. Operating income is projected to be between $16.0 billion and $20.0 billion, up from $13.2 billion in Q4 2023.
“We are encouraged by the start of the holiday season, which kicked off in October with a strong Prime Big Deal Days,” Olsavsky said.
