Amazon reports cloud unit grew at fastest rate since 2022

[WASHINGTON] Amazon.com’s cloud unit posted the strongest growth rate in almost three years, reassuring investors who were concerned that the largest seller of rented computing power was losing ground to rivals.

Amazon Web Services (AWS) posted revenue of US$33 billion, an increase of 20 per cent from the prior year and the biggest year-over-year rise since the end of 2022. Analysts, on average, estimated 18 per cent growth.

Investor expectations for the cloud business were relatively low heading into Thursday’s (Oct 30) report after the company in recent quarters cited constraints in getting new data centres online. Chief executive officer Andy Jassy and other executives had said that they were optimistic about the business, though they stopped short of forecasting a reacceleration of growth.

The shares jumped about 10 per cent in extended trading after closing at US$222.86 in New York. The stock has lagged behind that of its industry peers this year, with investors worrying that the company has yet to benefit enough from its artificial intelligence (AI) products. In its most recent quarter, Microsoft’s Azure cloud business grew at almost twice the rate of AWS, while Alphabet’s Google Cloud posted 33.5 per cent growth.

“We continue to see strong demand in AI and core infrastructure, and we have been focused on accelerating capacity, adding more than 3.8 gigawatts in the past 12 months,” Jassy said.

During the quarter that ended Sep 30, Amazon’s total sales rose 13 per cent to US$180.2 billion, the company said. Analysts, on average, were anticipating US$177.8 billion, according to data compiled by Bloomberg.

Under Jassy, Amazon has been working to improve the profitability of the retail business by stepping up automation and selling higher-margin ads and other services to online merchants. That work has receded from the headlines as investors focus on the company’s prospect in the battle to use AI.

The strong performance of Amazon’s cloud business and its core retail business likely reassured investors worried that the company was spending too much money pursuing what some have suggested is an AI bubble, said Melissa Otto, analyst at S&P Global.

“We are seeing good evidence of the AWS business performing very well,” she said. “It doesn’t feel bubbly to me. It just feels like a business firing on all cylinders.”

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Like its biggest rivals, Amazon has invested heavily in data centres and chips to build and operate AI models capable of generating text or images and automating processes. Purchases of property and equipment during the most recent quarter jumped 55 per cent to US$35.1 billion, the company said. The outlays topped analysts’ projections.

Though Amazon has sought to position its cloud business as a marketplace for a broad range of AI tools, it has a lot riding on a single partner: Anthropic PBC, the maker of the Claude chatbot and software coding assistant.

Amazon is backing Anthropic with an investment of US$8 billion, and built the startup a massive complex of data centres and custom AWS AI chips. That system, called Project Rainier, is up and running, the company said this week. Google recently announced a deal to provide Anthropic with some of its own chips.

Amazon said that its Trainium2 chip was “fully subscribed” and represented a multibillion-dollar business.

The company reported operating income of US$17.4 billion, which included a US$2.5 billion charge related to a legal settlement announced last month with the Federal Trade Commission over Prime subscriptions and US$1.8 billion for estimated severance costs. The company said this week that it would cut about 14,000 corporate workers and warned of further terminations in 2026.

Amazon projected that revenue in the holiday quarter would be US$206 billion to US$213 billion, meeting analysts’ estimates. Operating profit will be US$21 billion to US$26 billion, also in line with expectations.

In the third quarter, sales generated by the online store business increased 10 per cent to US$67.4 billion. Advertising unit revenue jumped 24 per cent to US$17.7 billion. Third-party seller services from merchants who use Amazon’s e-commerce site increased 12 per cent to US$42.5 billion. BLOOMBERG