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Lanon Wee

Amazon Cloud Division Generates Profits Despite Missing Revenue Expectations

Amazon Web Services reported a greater operating profit margin than anticipated, leading to higher operating income than predicted; however, revenue was slightly less than projected. During the quarter, Amazon put forward a large investment in the artificial intelligence enterprise Anthropic which will collaborate with various Amazon cloud services. Amazon reported Thursday that its cloud services unit saw revenue increase by 12% year over year in the third quarter. Despite this growth being lower than what analysts had expected from the world's foremost provider of computing and storage services delivered from remote data centers, it appears that the segment has been able to weather the economic issues raised by inflation and higher interest rates.The company's revenue from Amazon Web Services (AWS) for the quarter was $23.06 billion, differing slightly from what had been predicted by the StreetAccount survey. This indicates a slight increase compared to the second quarter, concluding a six-quarter period of continued deceleration.During the call with reporters, Amazon's CFO, Brian Olsavsky, refused to admit that AWS's expansion had hit a plateau, saying, "I wouldn't quite characterize it that way... We have cost optimization work that is starting to slow down, at least." Jassy, Amazon's CEO, pointed out that many clients are using Graviton chips made by Arm in order to reduce their core expenditure, while at the same time having committed to pricing plans of a one to three-year duration that guarantee them lower prices. Moreover, many organisations that had planned to switch to the cloud in 2023 have postponed their transitions.In terms of profitability, the cloud division displayed a strong result with $6.98 billion in operating income, increasing by 29% and well exceeding the StreetAccount prediction of $5.63 billion. Amazon as a whole earned $11.19 billion in operating income, while AWS's operating margin grew to 30.3%, its highest in two years. Olsavsky mentioned on the call that job cuts and slower recruitment have contributed significantly to the development of the AWS margin. The student was late for school The student arrived after the bell had rung for school. During Q1, AWS began offering its Bedrock service, which facilitates running generative AI models that generate text using only a few words of human input. Amazon has also stated that AI startup Anthropic will be making use of AWS Trainium chips for training their models, a process which usually leverages Nvidia graphics processing units. As part of this agreement, Amazon has chosen to invest up to $4 billion into Anthropic, which will consequently supply models through Bedrock. This week, Google parent Alphabet reported a 22% growth in cloud revenue, with the Wall Street projection being around 26%. Microsoft's Azure revenue saw a 29% rise, after recording eight quarters of diminishing growth, beating the 26% consensus.Needham's Laura Martin remarked that the market perceives Amazon more as a cloud and generative AI company now.

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