Amazon shares soar as AI boom fuels stellar growth in AWS cloud unit

Up until Friday’s stock surge, Amazon shares had risen just 1.6% so far this year due to market share worries and a lack of solid AI updates. (AFP pic)

NEW YORK: Amazon shares surged more than 11% in early trading on Friday after strong growth at its cloud unit and a bullish sales outlook eased fears that the tech giant was falling behind rivals in the AI race.

Revenue at Amazon Web Services, the hub of the company’s recent AI investments, rose 20% in the third quarter. Although Microsoft Azure’s revenue increased by 40% and Google Cloud’s by 34%, AWS’s sheer scale magnifies its growth impact.

Its US$33 billion cloud revenue is more than double that of Google’s US$15.16 billion.

Wall Street cheered AWS’s comeback, with analysts noting the earnings marked a potential turning point for Amazon.

“There was definitely concern about AWS losing market share to Microsoft Azure and Google Cloud … But now AWS is aboard the train as well and they’re seeing a big revenue increase,” said Jed Ellerbroek, portfolio manager at Argent Capital.

Ellerbroek said investors were expecting an AWS boost in the fourth quarter or early next year. “But it’s already come this quarter,” he said.

Amazon to overtake Apple, Tesla in year-to-date gains

Up until Friday’s stock surge, Amazon shares had risen just 1.6% so far this year due to market share worries and a lack of solid AI updates, making the company the worst performer in the “Magnificent Seven” group of tech giants.

If premarket gains hold, Amazon will overtake Tesla and Apple on the list. The EV company has climbed about 9% this year, with Apple up roughly 8%. Both stocks are up less than 2% in premarket trading.

Amazon CEO Andy Jassy said on Thursday AWS is “growing at a pace we haven’t seen since 2022,” on the back of strong demand for AI and core infrastructure.

In response to the growing demand, Amazon joined other Big Tech companies in projecting an increase in capital expenditures for the coming year.

“Amazon delivered one of the strongest performances of this earnings season, quieting any lingering doubts about its ability to execute at scale,” said eToro market analyst Farhan Badami.

Amazon’s forward 12-month price-to-earnings ratio stands at 29.63, surpassing Alphabet’s 25.98 but trailing Microsoft’s 31.72.

Retail, ads put up strong showing

The company’s retail and advertising businesses also delivered robust performances.

“Amazon’s retail results were very good. They’re growing 11% year over year. Name me another big retailer in America growing that fast – they don’t exist,” said Jed Ellerbroek of Argent Capital.

Although a smaller part of Amazon’s overall operations, its advertising segment is growing fast. Sales in the business jumped 24% to US$17.7 billion in the quarter, thanks to the company’s efforts to expand ad placements across its Echo devices, grocery carts and sponsored listings.

At least 23 brokerages lifted their price target on Amazon’s stock following the results.

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