Amazon's cloud sales are growing the most in 15 quarters. Investors sent the stock down on AI capex fears
Amazon on Wednesday reported strong increases in profits and net sales during its fiscal first quarter, helped by surging growth in its cloud computing unit. Sales in its cloud computing unit were up 28% in the January-March period, the fastest increase in 15 quarters. Amazon Web Services had 24% sales growth in the fourth quarter, following the division’s 20% growth in the third quarter. The Seattle-based company also offered a bullish outlook for net sales in the current quarter, surpassing analysts’ estimates. However, shares initially slid nearly 2% in after-hours trading before rising about 3%. Investors were closely watching Amazon’s quarterly earnings to see if the company’s $200 billion investment in artificial intelligence, robots, semiconductors, and satellites was starting to pay off. The planned expenditure for the year marked a 60% increase from Amazon’s $128 billion in capital spending last year, spooking investors and sending the stock down 11% in after-hours trading when it was announced in February. CEO Andy Jassy defended the spending during the previous quarterly earnings call, stating that Amazon expected long-term returns on its invested capital. The latest quarter’s results underscored that demand for Amazon’s services and technology continues to grow. Jassy emphasized, ‘We’re in the middle of some of the biggest inflections of our lifetime, we’re well positioned to lead, and I’m very optimistic about what’s ahead for our customers and Amazon.’ Amazon released its first-quarter earnings on the same day as three other tech giants—Microsoft, Meta, and Alphabet—were reporting theirs, providing investors with a snapshot of AI spending and cloud growth across the industry. Big deals signed with OpenAI, Anthropic, and Meta this month bolstered Amazon’s momentum. Amazon announced a ‘major expansion’ of its partnership with OpenAI, following Microsoft’s loosening ties with OpenAI. Last week, Anthropic agreed to commit over $100 billion to Amazon’s AWS cloud platform over the next decade to train and power its Claude chatbot, securing up to 5 gigawatts of Amazon’s Trainium chips. Meta, which owns Instagram, WhatsApp, and Facebook, also signed an agreement to power agentic AI on AWS’ Graviton chips. Despite these advancements, Amazon faces challenges like higher tariff costs due to President Donald Trump’s foreign trade policies and rising shipping costs influenced by the Iran war, which could impact its e-commerce revenue. Amazon introduced a 3.5% fuel and logistics surcharge on third-party sellers using its platform, effective April 17. Meanwhile, Amazon is accelerating order delivery times through robotics, AI technology, and more efficient warehousing. This effort helped Amazon surpass Walmart in February as the nation’s largest company by revenue, according to Fortune. Amazon Now, an ultra-fast delivery service, now offers orders in 30 minutes or less in various cities in India, Mexico, the UAE, and parts of Tokyo and eight major cities in Brazil, serving tens of millions of customers across nine countries. The company plans to expand this service globally in the U.S. and beyond. Amazon reported earnings of $30.3 billion, or $2.78 per share, for the three-month period ended March 31, compared to $17.1 billion, or $1.59 per share, in the year-ago period. Net sales rose 17% to $181.5 billion in the quarter, exceeding analysts’ expectations of $177.28 billion. Revenue from Amazon Web Services reached $37.58 billion, surpassing analysts’ expectations of $36.6 billion. For the current quarter, Amazon expects net sales to range between $194 billion and $199 billion, an increase of 16% to 19% from the year-ago quarter, compared to analysts’ expectations of $188.96 billion.
Source: Fortune