Amazon’s cloud business accelerates but shares drop on profit miss

Amazon's cloud computing arm, AWS, experienced robust growth while the tech giant's overall shares declined by over seven percent in after-hours trading on Thursday. This drop came after the company's quarterly earnings report fell short of analysts' expectations due to a decrease in profit and total revenue. However, investors were already concerned following Google's own lower-than-anticipated profits, driven by a slowdown in advertising and substantial investments in AI.

Alphabet, Google's parent company, saw its shares plummet more than 10% after the market closed on Wednesday, and closed nearly 12% lower on Thursday. Similarly, Intel experienced a sharp decline of 20% after hours on Thursday, following a statement indicating a protracted slump in personal computer sales.

Amazon anticipates spending $220 billion on capital expenditures this year, primarily on investments in artificial intelligence. The company reported total revenue of $201.9 billion and profit of $20.7 billion in the third quarter, below the estimated $202.2 billion and $21.5 billion, respectively, according to FactSet. Revenue from advertising services also fell short, reaching $19.6 billion compared to the expected $20.8 billion.

Amazon CEO Andy Jassy emphasized the company's potential in lucrative sectors, including grocery, healthcare, pharmacy services, its Leo internet satellite division, and autonomous vehicles.

Jassy asserted that Amazon is well-positioned to capitalize on the AI race, thanks to AWS's global leadership and its strong presence in AI cloud and chip businesses. In July, Amazon reported AI cloud and chip businesses each generating over $25 billion in annual recurring sales, indicating a triple-digit percentage growth. AWS chips demand is reportedly strong, and Amazon plans to make them more widely available later next year, Jassy said during an analyst call on Thursday.

As tech companies collectively spend hundreds of billions on AI-related expenses this year, including chips and data centers, investors are closely monitoring the potential returns on these investments. Some companies, like Microsoft, Alphabet, Meta, Nvidia, and SpaceX, have taken on debt or raised capital to fuel their AI growth.

Meta, for instance, announced a new stock offering to finance its AI spending. Amazon, meanwhile, has recently cut 16,000 jobs, making it the second major round of layoffs since cutting 14,000 jobs last year.