Amazon has reported a strong third-quarter performance, showing that robust operating earnings can offset its rising expenses in artificial intelligence (AI) investment, the Wall Street Journal reports.
The e-commerce and tech giant announced a record $22.6 billion in capital expenditures for the quarter, marking an 81% year-over-year increase and surpassing similar increases from major tech firms like Microsoft, Meta, and Google parent Alphabet. Analysts had anticipated Amazon’s spending would rise to $17.6 billion; the actual figure considerably exceeded those expectations, according to data from FactSet.
While high investment spending in the tech sector has spurred investor caution recently—evidenced by declines in Microsoft and Meta shares following their earnings reports—Amazon’s results offered a positive outlook. Total revenue for Amazon increased 11% from a year earlier, an improvement over its 10% growth rate in the prior quarter, largely fueled by strong sales in everyday items. The company’s operating profit reached $17.4 billion, 19% above analysts’ estimates, leading Amazon’s stock to gain over 5% in after-hours trading.
Amazon’s guidance for fourth-quarter operating income, projected to range from $16 billion to $20 billion, again surpassed Wall Street expectations by 4%. The company has typically struggled to meet analysts’ quarterly earnings expectations, missing them in 13 out of its last 16 quarters, as reported by FactSet. This new projection allays concerns that costs from new initiatives, such as its satellite-based internet service, might impact profit margins.
Jeffries analyst Brent Thill emphasized the significance of these margins, noting that Amazon’s results show the company can “invest in growth while delivering greater profitability.” Ronald Josey from Citigroup echoed this sentiment, highlighting Amazon’s demonstrated ability to sustain profits amid aggressive growth.
The bulk of Amazon’s $620 billion in annual revenue still comes from its low-margin retail business, but the company has increased its profitability through its successful cloud-computing segment, Amazon Web Services (AWS), and its rapidly expanding advertising business, which now brings in over $53 billion in annual revenue. Amazon has further advertising growth potential, as it is only beginning to offer ad slots for its Prime Video service.
CEO Andy Jassy shared updates on the company’s AI business, calling it a “multibillion-dollar revenue run rate business.” Jassy explained that the AI sector is currently growing at triple the pace of AWS at a comparable point in its growth, signaling substantial long-term potential. He also indicated that Amazon’s capital expenditure could rise above $75 billion next year, a significant increase from its average of $54 billion annually over the past five years.
