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Demand for artificial intelligence lent momentum to sales growth in Amazon’s cloud computing division, the company said on Tuesday, in the latest sign of how Big Tech companies are looking to the fast-growing technology to boost their fortunes.
Amazon Web Services, a critical profit driver for the ecommerce giant, recorded a 17 per cent gain in sales to $25bn during the first three months of 2024, ahead of forecasts for $24.5bn and faster than the 13 per cent rise recorded in the previous quarter. Overall net sales were $143.3bn, up 13 per cent from the year before and above forecasts for $142.5bn.
Chief executive Andy Jassy said demand for Amazon’s cloud computing services, including its generative artificial intelligence products, was boosting AWS’s growth, which he said was “now at a $100bn annual revenue run rate”.
The division’s margins also widened during the period to 38 per cent, compared with 30 per cent in the previous quarter. Generative AI was “now a multibillion-dollar revenue run rate business for us”, said chief financial officer Brian Olsavsky.
Amazon has been vying with cloud computing rivals Microsoft and Google parent Alphabet for dominance in generative AI, and the three companies have outlined plans to spend billions of dollars on infrastructure such as data centres to support the fast-developing technology.
Spending on AI and other new technologies has come under Wall Street’s microscope during the latest round of earnings, with investors hoping to see signs of pay-offs from the huge investments.
Olsavsky said Amazon expected its capital expenditures this year to increase “meaningfully” compared with $48.4bn in 2023, primarily to support growth in the cloud business. Amazon invested $14.9bn in property and equipment during the quarter, a sum that would increase throughout the year, he said.
The infrastructure investments by Big Tech companies come as cloud computing rivals race to win AI market share and position themselves to be able to keep up with what they hope will be a booming demand from businesses.
Microsoft said last week that its “near-term AI demand is a bit higher than our available capacity”. But Swami Sivasubramanian, vice-president for data and machine learning at AWS, told the Financial Times that Amazon was not facing the same constraints, adding that it was “rapidly scaling our capabilities”.
Microsoft said last week that AI demand had boosted sales at its Azure cloud platform by 7 percentage points in the first three months of the year, but Amazon did not disclose on Tuesday how demand for the technology had contributed to sales at AWS.
Another focus for executives overseeing Amazon’s sprawling empire is the high-margin advertising business. Revenue from advertising rose 24 per cent to $11.8bn during the quarter. While most advertising sales are linked to Amazon’s ecommerce segment, the company launched an ad-supported tier for its Prime Video streaming service this year.
Amazon’s operating income for the first three months of the year more than tripled to $15.3bn, beating forecasts for $11bn. Net income was $10.4bn, well ahead of forecasts for $8.7bn. The company has been on a drive to cut costs and expand margins in recent quarters, including by reorganising its huge US logistics network and building out its logistics-as-a-service offering for other retailers.
The company’s first US “Big Spring Sale” sales event lifted its retail sales during the quarter, while overall sales benefited from an extra day during the quarter thanks to the leap year.
However, guidance for total second-quarter net sales came in below expectations, with Amazon predicting between $144bn-$149bn compared with analyst forecasts of $150bn.
Shares in Amazon, which have risen by about 17 per cent this year, rose 3 per cent in after-hours trading.
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