Amazon AWS third-quarter profits rise despite Gen AI boom

In the quarter, Amazon generated earnings per share of $1.43 on total revenue of $158.9 billion, beating average analyst estimates of $1.14 and $157.2 billion per share . But it was Amazon Web Services, the company's cloud computing business that has emerged as a key growth driver, particularly in the AI ​​era, that really stood out in its fiscal third-quarter results.

AWS operating income increased 50% year-over-year to $10.4 billion. Meanwhile, the unit's revenue rose 19% to $27.5 billion from the same period last year, in line with analysts' expectations.

The division's operating profit margin was 38%, up from 30% in the same period last year. The robust gains came even as Amazon, like its big tech rivals, is investing heavily in its own AI consumer products while expanding its offering of AI services and building blocks for enterprise customers.

What's unknown, however, is what those gains will look like as AWS's multibillion-dollar Gen AI business – where revenues are growing more than 100% year over year – becomes a larger part of the overall Amazon Web Services business, according to this an analyst asked Amazon CEO Andy Jassy on Thursday's earnings call.

Jassy acknowledged that Amazon needs to invest heavily in AI infrastructure such as data centers and chips before monetizing or selling them, but assumed that “there will be very good margins here in the generative AI space over time.” .

For now, Amazon continues to increase its overall capital expenditures, with a particular focus on expanding its data center network to support its more mature AWS businesses as well as Gen AI. Also contributing to the higher spending are increased automation and robotics investments in Amazon's warehouse network.

“We really believe that AI will be an important part of our work in the robotics network,” Jassy said of the company’s ongoing efforts to automate work in its warehouses.

Company executives said capital spending will total $75 billion by the end of this year, meaning those investments will have increased 50% in the second half of the year, compared to the roughly $30 billion spent in were issued in the first six months. Amazon will likely exceed $75 billion in 2025, Jassy told analysts on the call, potentially leading to short-term profit cuts in favor of what he called “perhaps a once-in-a-lifetime opportunity.”

“The faster we grow demand, the faster we need to invest capital,” the CEO said of his Gen-AI businesses.

AWS's operating margin also rose 2 percentage points in the quarter due to an accounting change related to the way Amazon assesses the useful life of its data centers. Another factor contributing to AWS's higher margins was a “measured” pace of hiring.

“Our office staff (number) has declined slightly compared to last year,” an official told analysts.

Sales at Amazon's core e-commerce business rose 8% to $61.4 billion, driven by a wider selection of lower-priced goods and the company's fall sales event for Prime members. Jassy said the company is continuing to increase delivery speeds as it works on a multi-year restructuring of its North American warehouse network across eight regions. Last quarter, 40 million Prime customers received same-day orders at no additional cost, an increase of more than 25% from a year ago, Jassy said.

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