Amazon.com Inc. reported robust growth in its cloud computing division, reassuring investors that its multibillion-dollar investments in artificial intelligence (AI) will eventually pay off.
In its Q3 earnings release on Thursday, Amazon Web Services (AWS) revenue surged 20% year-over-year to $33 billion, surpassing analysts' expectations of 18%. This marks the division's fastest growth since OpenAI launched ChatGPT in late 2022.
The results validate the massive data center investments by tech giants like Microsoft Corp. and Alphabet Inc., underscoring the global AI demand outpacing current computing capacity.
A day earlier, Meta Platforms Inc. faced investor backlash after announcing higher spending plans for 2026. Unlike Microsoft and Google, Meta is not a major cloud service provider for external clients, raising concerns about the risks of its aggressive spending.
Amazon's stock soared 12% to $249.42 at Friday's market open, its biggest single-day gain since April. The company had lagged behind peers this year, with investors questioning its ability to monetize AI products. Microsoft's Azure cloud grew nearly twice as fast as AWS in Q3, while Google Cloud expanded by 33.5%.
William Blair analysts noted, "AWS remains Amazon's core growth engine, with accelerating revenue and better-than-expected operating margins. This rebound alleviates doubts about Amazon's strategic positioning in AI."
To stay ahead in the AI arms race, CEO Andy Jassy pushed capital expenditures to a record high this quarter.
Pre-earnings expectations for AWS were muted due to Amazon's recent warnings about data center deployment delays. Though executives expressed optimism, they had not forecast a growth rebound.
During the earnings call, Jassy highlighted AWS's momentum, citing previously undisclosed AI-driven metrics: - Rufus, its shopping chatbot, is projected to generate $10 billion in annual sales. - The call-center software Connect is nearing $1 billion in annual revenue. - The AI model marketplace Bedrock could eventually rival AWS's core profit driver, EC2.
Amazon's total Q3 sales rose 13% to $180.2 billion, beating the $177.8 billion consensus.
Under Jassy, Amazon has focused on retail profitability through automation and high-margin services like ads. However, AI competition now dominates investor attention.
Like rivals, Amazon is heavily investing in data centers and custom chips for AI. CFO Brian Olsavsky reported a 61% YoY capex jump to $34.2 billion. AWS has doubled its data center power capacity since 2022 and plans another doubling by 2027, despite a major outage last week.
While Amazon positions AWS as an AI tools marketplace, its AI strategy leans heavily on Anthropic PBC, the developer of Claude AI. Amazon has invested $8 billion in Anthropic, building dedicated data centers and custom chips. Its Trainium2 chips are already sold out, with the business reaching billions in scale. Notably, Google recently partnered with Anthropic to supply its own chips.
Amazon's Q3 operating profit was $17.4 billion, including: - A $2.5 billion FTC settlement over Prime subscriptions. - $1.8 billion in estimated layoff costs. The company plans to cut 14,000 corporate jobs, with further reductions possible in 2026.
For Q4, Amazon forecasts revenue of $206–$213 billion and operating income of $21–$26 billion, aligning with estimates.
Segment breakdown: - Online store sales: +10% to $67.4 billion. - Ads: +24% to $17.7 billion. - Third-party seller services: +12% to $42.5 billion.