Amazon.com AMZN.O beat fourth-quarter revenue expectations on Thursday as new generative AI features in its cloud and ecommerce businesses spurred robust growth during the critical holiday period, sending its shares up 8 percent after the market close.
The company forecast current-quarter revenue of $138 billion to $143.5 billion. Analysts polled by LSEG expect $142.13 billion.
Amazon Web Services (AWS), the world’s largest cloud services provider, posted revenue of $24.2 billion in the fourth quarter, largely in line with analysts’ expectations of $24.26 billion.
AWS CEO Andy Jassy in a statement touted the unit’s “continued long-term focus on customers and feature delivery,” citing efforts to incorporate generative AI into many of its services. The new features “are starting to be reflected in our overall results,” he said.Amazon’s roster of high-spending business customers have provided it stable growth in an uncertain economy, but its position as the world’s biggest cloud provider is being challenged by Microsoft MSFT.O and Alphabet GOOGL.O.
To bolster its cloud business and in response to Microsoft’s promised $10 billion investment in ChatGPT parent OpenAI, Amazon is spending up to $4 billion in chatbot-maker Anthropic.Earlier this week, Microsoft and Alphabet reported generous cloud revenue gains in the December quarter, beating Wall Street estimates, as customers lined up to test new AI features and build their own AI services.
But mounting costs of developing these cutting-edge features irked investors hoping for a big sales boost from the new technology, sending their shares down.
“All eyes will be on AWS, where the mild acceleration of growth … leaves some lingering doubts about whether the cloud unit will be able to hold its own against rivals,” said Insider Intelligence senior analyst Sky Canaves.
Amazon shares have climbed over 6 percent this year and 41 percent in the past 12 months. The stock, which surged 81 percent in 2023, helped boost the S&P 500 SPX by nearly a quarter last year along with other tech giants.
Despite the strong performance, Amazon began the year by shedding jobs in several divisions. Last year, it cut more than 27,000 jobs after hiring heavily during the pandemic like other tech rivals.
“We’re coming off a period where we’ve done a lot of hiring,” Amazon’s chief financial officer Brian Olsavsky told reporters on a call. “There’s a general feeling in most teams that we’re trying to hold the line on headcount.”
Amazon has built fulfillment centers closer to customers, making it cheaper and faster to deliver packages. During the key Black Friday and Cyber Monday holiday shopping events last year, customers worldwide bought more than 1 billion items on Amazon.
The company has also launched Buy With Prime, a service that enables Prime subscribers to get one- and two-day shipping from merchants who may not be on Amazon.com.
“Despite all the concerns plaguing the tech sector, Amazon has managed to perform surprisingly well. The results indicate that ongoing cost-cutting measures are having a positive impact on Amazon’s business prospects,” said Jesse Cohen, senior analyst at Investing.com.
“Amazon’s strong guidance is another indicator that the company may be starting to come out of the woods,” said Cohen, noting the strength in its cloud computing and advertising businesses.
Amazon’s fourth-quarter sales rose 14 percent to $170 billion, beating analysts’ average estimate of $166.21 billion according to LSEG data. Adjusted profit of $1 per share beat an average estimate of 80 cents per share.
