Amazon (AMZN) shares surged by as much as 5% in after-hours trading on Thursday after the e-commerce giant reported third-quarter revenue and earnings per share that surpassed Wall Street expectations.
The company projected fourth-quarter revenue to fall between $181.5 billion and $188.5 billion, exceeding analysts’ forecasts of $186.36 billion. Additionally, Amazon anticipates operating income for the fourth quarter to be in the range of $16 billion to $20 billion, while Wall Street had estimated $17.49 billion.
For the third quarter, Amazon reported earnings of $1.43 per share on revenue of $158.9 billion, outpacing analyst expectations of $1.16 per share and revenue of $157.29 billion. Notably, Amazon Web Services (AWS), a key component of the company’s portfolio, generated revenue of $27.45 billion, aligning closely with market projections.
“You’ve got the ingredients you needed for the stock to go up,” said Arun Sundaram, a senior equity research analyst at CFRA, in an interview with Yahoo Finance. He highlighted Amazon’s operating margin of 11%, which exceeded the Wall Street expectation of 9.34%, as a significant factor driving the stock’s after-hours increase. Sundaram noted that Amazon’s ability to leverage its e-commerce and advertising segments contributes to margin growth even as it invests in AI.
Amazon’s earnings came during a turbulent period for Big Tech, as investors closely scrutinized how companies are managing rising AI expenditures. Alphabet (GOOGL, GOOG) posted strong results, exceeding expectations with notable gains in its cloud and advertising sectors, both of which compete with Amazon. In contrast, Microsoft and Meta (META) faced challenges, with their stocks declining amid concerns over escalating AI costs, despite both companies reporting earnings that beat expectations.
In its earnings announcement, Amazon indicated plans for substantial capital expenditures, forecasting $75 billion for 2024, with CEO Andy Jassy stating that spending will likely exceed that amount in 2025. This marks a significant increase from 2023’s capital expenditures of $48.4 billion, driven primarily by generative AI, which Jassy described as a “maybe once-in-a-lifetime type of opportunity.”
“The faster we grow demand, the faster we have to invest capital in data centers and networking gear and hardware,” Jassy explained during the earnings call. He noted that investments in AI-related hardware, such as accelerators and chips, are costlier than traditional CPU investments, necessitating upfront capital expenditure ahead of monetizing those resources with customers.
Looking ahead, Jassy expressed optimism about the generative AI sector, asserting, “I think, as the market matures over time, there are going to be very healthy margins here in the generative AI space.”
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