Amazon beats earning estimates, touts AI as the future of the cloud

Amazon (AMZN) reported its third quarter earnings on Thursday, beating expectations on net sales and EPS, but missing on its cloud revenue.

Its shares climbed by as much as 5% in after-hours trading, with gains dissipating then shooting back up after the company’s earnings call.

Artificial intelligence was the star of the call. CEO Andy Jassy told analysts that AI represents an opportunity worth “tens of billions” for Amazon’s cloud business, Amazon Web Services (AWS). This year, AWS launched its Bedrock AI service, which streamlines the development of large language models.

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

In September, Amazon invested $1.25 billion in Open AI competitor Anthropic. The investment could go up to $4 billion over time.

AI could provide the growth spurt that AWS is looking for. In Q3, the division fell slightly short of analysts’ net sales expectations, coming in at $23.06 billion, against the $23.13 billion Wall Street expected.

However, there were silver linings, as AWS sales were up 12% year-over-year and the division’s operating income is also on the upswing, coming in at $7 billion, a roughly 29% increase from last year. That 12% growth is “just enough to keep the goblins away,” Jefferies analyst Brent Thill wrote on Thursday after earnings.

It’s been a week of mixed cloud results. On Tuesday, Microsoft (MSFT) reported better-than-anticipated growth in its Azure cloud business, while Alphabet’s (GOOG, GOOGL) cloud growth numbers disappointed.

AWS growth has been under a microscope this year, and it’s a subject that has been “getting the most airtime with investors,” JPMorgan’s Doug Anmuth wrote before earnings. In a call with media on Thursday, Amazon CFO Brian Olsavsky said that he doesn’t believe AWS growth has stalled completely, instead characterizing the cloud business as in a “delicate” transition.

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