Amazon shares soar as cloud growth beats expectations

Source Credit : Reuters

Amazon's cloud revenue rose at the fastest clip in nearly three years, helping the company forecast quarterly sales above estimates and driving its shares up 14% in after-market trading.

The company projected increased capital spending next year.

The online retailer benefited as businesses continue to spend relentlessly on artificial intelligence software development. Massive cloud demand is helping the tech company ease the pressure from softer growth at its e-commerce business, which is gearing up for the critical holiday season amid weakness in consumer confidence stemming from global trade uncertainty.

Amazon's rally in extended trading lifted the company's market value by about $330 billion. A stock rally of the same size in Friday's official trading session would make it Amazon's biggest one-day percentage gain since 2015.

"AWS is growing at a pace we haven’t seen since 2022," CEO Andy Jassy said in a statement. "We continue to see strong demand in AI and core infrastructure, and we’ve been focused on accelerating capacity."

Amazon Chief Financial Officer Brian Olsavsky said he expected full-year capital expenditures to be around $125 billion, and higher next year, without providing details. The company booked $89.9 billion in capital expenditures through the first three quarters, largely on AI projects.

CLOUD REVENUE JUMPS

Its cloud unit, Amazon Web Services, reported a 20% rise in revenue in the third quarter ending in September, compared with estimates of a 17.95% increase. Amazon shrugged off a tough prior week when an extended outage at AWS felled many of the most popular websites and consumer apps.



Amazon has been the worst-performing stock among the "Magnificent 7" megacap tech companies, due in part to a nagging reputation as a laggard in AI development.

"The report confirms Amazon’s operations are firing on all cylinders after a year of relative underperformance," said Ethan Feller, stock strategist at Zacks Investment Research. He said despite the stock's nearly flat growth this year, "the company’s fundamentals never meaningfully weakened."

Amazon projected total net sales of between $206 billion and $213 billion for the fourth quarter, while analysts on average were expecting revenue of $208.12 billion, according to data compiled by LSEG.

Normally subdued, Jassy adopted an exuberant tone on the call with analysts.

"I look at the momentum we have right now, and I believe that we can continue to grow and click like this for a while," he said. "I think there are multiple places where we can expect to continue to grow," he added, referring to advertising and retail sales.

The strong results from AWS, the world's largest cloud provider, followed stellar cloud revenue growth reported on Wednesday by Microsoft's Azure and Google Cloud, the No. 2 and No. 3 players in the industry, respectively.

Microsoft, Google parent Alphabet and Facebook owner Meta all announced plans for higher annual capital expenditures as they pour money into chips and data centers.