TL;DR:
- Amazon’s stock surged by 7%, driven by renewed growth in its cloud division.
- The company is aggressively targeting a larger share of the growing AI market, competing closely with Microsoft.
- CEO Andy Jassy highlighted the stability of the cloud business and the potential for AI to generate billions in revenue.
- Wall Street responded positively, with many brokerages raising price targets, averaging at $173.
- Despite recent setbacks, Amazon reported its first quarter-on-quarter cloud growth in two years.
- AWS growth (12.3%) lags behind Microsoft’s Azure (29%) but outpaces Google Cloud (22.5%).
- Amazon’s valuation stands at 38.49 times forward earnings estimates.
- Amazon aims to catch up in the AI race with strategic investments and services.
Main AI News:
Amazon.com witnessed a remarkable 7% surge in its stock price on Friday, propelled by renewed growth in its highly lucrative cloud division. This resurgence is part of Amazon’s ambitious quest to secure a more substantial share of the flourishing artificial intelligence (AI) market, positioning itself as a formidable contender to Microsoft.
With its last traded share price standing at $128, the e-commerce behemoth was poised to augment its market capitalization by nearly $90 billion. In contrast, its smaller cloud rival, Microsoft, experienced a more modest uptick of 1.5%, while Alphabet faced a 1.3% dip in its stock value.
Amazon’s CEO, Andy Jassy, conveyed optimism regarding the stability of the cloud business during a recent announcement. He emphasized the promising outlook resulting from substantial expansions with existing clients and prospective agreements, all of which are poised to fuel growth during the final quarter of the year. Jassy further underscored the significant potential for Amazon Web Services (AWS) in the realm of AI, predicting that this technology would pave the way for “tens of billions of dollars in revenue over the next several years.“
The favorable commentary from Amazon’s leadership was met with enthusiasm on Wall Street, particularly given that this business segment contributes to the lion’s share of Amazon’s profits. Its growth trajectory had temporarily slowed during the pandemic as customers sought to trim expenditures. Commenting on this development, analysts at Bernstein remarked, “Tech investors can breathe a sigh of relief,” and they noted that “AWS growth sounds ready to re-accelerate even without AI.”
Notably, approximately 26 brokerages revised their price targets for Amazon stock upward, collectively pushing the median estimate to $173, according to data from the London Stock Exchange Group (LSEG).
Despite Amazon’s robust performance, its shares experienced a recent 8% downturn over two days, triggered by Alphabet’s cautionary note regarding cloud customer spending.
In the period spanning July to September, Amazon reported its first quarter-on-quarter surge in cloud growth in nearly two years. Morningstar analyst Dan Romanoff commented, “Amazon Web Services optimization has stabilized, although growth fell slightly shy of our expectations.” Amazon’s AWS growth rate of 12.3% lagged behind the 29% surge witnessed at Microsoft’s Azure cloud business, which exceeded market projections. Meanwhile, Google Cloud exhibited a respectable growth rate of 22.5% during the same period.
From a valuation perspective, Amazon is trading at 38.49 times its 12-month forward earnings estimates, contrasting with Microsoft’s 27.85 and Alphabet’s 18.66.
Despite Amazon’s cloud business being larger than those of Microsoft and Google, it is perceived as trailing in the AI race, where Microsoft has taken the lead through its investments in OpenAI and its strategic focus on established clients already utilizing its services. Amazon has made concerted efforts to narrow the gap, including a significant deal in September involving an investment of up to $4 billion in chatbot-maker Anthropic and the introduction of its Bedrock AI service, which has garnered substantial interest from thousands of customers.
Global X analyst Tejas Dessai emphasized the potential of generative AI as a catalyst that could reignite growth within the AWS franchise, particularly in light of anticipated major partnerships in the upcoming quarters.
Conclusion:
Amazon’s robust performance in its cloud business and strategic focus on AI signifies its determination to remain competitive with Microsoft. While AWS’s growth may have trailed Azure, it still holds substantial potential. This development highlights Amazon’s commitment to securing a prominent position in the AI-driven market, which will likely intensify competition and innovation in the industry.
