Amazon’s cloud business accelerates but shares drop on profit miss

SAN FRANCISCO:

Amazon shares fell more than seven percent in after-hours trading Thursday following a quarterly earnings report that missed analyst expectations on profit and total revenue but showed strong growth in the company’s AWS cloud business.

The miss came as investors were already rattled by Google’s own lower-than-expected profits on a slowdown in advertising and big spending on AI.

Shares in Google-parent Alphabet dropped more than 10% after market close on Wednesday and closed down more than 12% on Thursday.

Intel meanwhile tumbled 20% after the bell Thursday after it said it expected a protracted slowdown for personal computers.

Amazon still expects to spend US$220 billion on capital expenditures this year, primarily on investments in artificial intelligence, it said.

The company recorded US$201.9 billion in total revenue and US$20.7 billion in profit in the third quarter, below expectations of US$202.2 billion and US$21.5 billion, respectively, according to FactSet.

Revenue from advertising services also fell short, reaching US$19.6 billion versus US$20.8 billion expected.

Amazon touted potentially lucrative business segments which extend beyond e-commerce, including grocery through Whole Foods, health care and pharmacy services, its Leo internet satellite division and Zoox autonomous vehicles.

“There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years,” CEO Andy Jassy said in a statement, echoing comments from July when he said that AWS was “booming.”

The company is well-positioned to benefit from the artificial intelligence (AI) race due to its early lead in clouding computing services through AWS, which remains the top provider globally, followed by Microsoft Azure and Google Cloud.

Amazon said in July that its AI cloud and chips businesses each “exceeded” US$25 billion annual revenue run rates, a measure of recurring sales, representing “triple-digit” percentage growth.

Demand for its proprietary Trainium chips is “strong” and Amazon intends to make them more broadly available late next year, Jassy said on a call with analysts Thursday.

Debt load

Tech companies are expected to collectively spend hundreds of billions of dollars on AI-related expenses this year, which includes buying chips and building data centres, and investors are closely monitoring whether those investments are paying off.

Some companies have been taking on debt or raising cash through other means to fuel this growth.

Microsoft recently raised US$25 billion through a bond sale, according to reports on Thursday.

Alphabet, Meta, Nvidia and SpaceX have also borrowed billions over the past couple of years, contributing to AI-related debt reaching US$335 billion globally this year, according to Bloomberg.

Last week, Facebook-parent Meta said it would raise capital through a new stock offering, which will help fuel its AI spending.

Layoffs and buyouts

Tech companies have been trimming their global workforces in the name of efficiency, as well.

In January, Amazon said it would cut 16,000 jobs worldwide, its second major round of cuts after cutting 14,000 jobs last year.

Microsoft slashed close to four percent of its global workforce, impacting around 15,000 jobs, last year.

This week, Microsoft offered voluntary buyouts to a quarter of its workforce, following an early retirement buyout offered to around seven percent of its employees earlier this year.

Netflix will reportedly cut around six percent of its workforce this year.

Auction site eBay laid off 1,000 employees earlier this month, more than doubling total layoffs this year.

In April, Meta said it would cancel plans to hire 6,000 people and also shift 7,000 other employees into AI workflow-related roles, then laid off around 10 percent of its global workforce in May.

Ride-hailing giant Uber said in September that it would lay off around 10 percent of its staff, impacting an estimated 3,000 or more employees.

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