Amazon Gains Momentum in Cloud and AI Markets as it Competes with Microsoft
After experiencing a period of slow growth due to reduced client spending, Amazon.com saw a significant boost of almost 6% on Friday. This surge was attributed to promising indications of increased momentum in its primary source of profit, the cloud business, which had been stagnant for the past two years.
The company was looking to add more than $70 billion to its market capitalization, based on its $127 market cap. Smaller cloud competitors Microsoft and Alphabet also rose by around one percent each.
Amazon Chief Executive Officer Andy Jassy said on Thursday that the cloud business is stabilizing as major expansions with existing customers and first-time contracts are likely to drive growth in the final three months of the year.
He also cited Amazon Web Services’ (AWS) AI opportunity, saying he expected the technology to lead to “tens of billions of dollars in revenue over the next several years.”
Wall Street cheered positive commentary from the company, which generates nearly all of Amazon’s profits, but had slowed since the pandemic as customers cut costs.
“Tech investors can breathe a sigh of relief,” Bernstein analysts said in a client note, adding that “AWS growth looks poised to accelerate again even without AI.”
About 19 brokerages raised their price targets on the stock and lifted their median outlook to $173, according to LSEG data.
Amazon shares are up 40% this year, but have lost nearly 8% in the past two days after Alphabet warned cloud customers were cutting back on spending.
In July-September, Amazon posted its first quarterly cloud growth in nearly two years, although the unit’s revenue fell short of estimates.
AWS’s 12.3% growth was also slower than the 29% growth of Microsoft’s Azure cloud business, which had topped market estimates. Google Cloud grew by 22.5% during the period.
Amazon trades at 38.49 times its forward 12-month earnings estimate, compared to Microsoft’s 27.85 and Alphabet’s 18.66.
Amazon’s cloud business is certainly bigger than Microsoft’s and Google’s. But the e-commerce company is considered a laggard in the artificial intelligence race, which Microsoft is leading with its investment in OpenAI and its focus on large customers that already use its services.
Amazon has tried to catch up, signing a deal in September to invest up to $4 billion in chatbot maker Anthropic and rolling out its Bedrock AI service, which has attracted thousands of customers.
“Generative AI is a massive catalyst that can reignite growth in the (AWS) franchise,” said Global X analyst Tejas Dessai.
“We see some significant partnerships being secured this quarter, which will be key to driving growth in the quarters to come.”
