Amazon’s cloud acceleration calms investor fears of AI bubble

(Bloomberg/Matt Day) — Amazon.com Inc. posted robust cloud growth that reassured investors that the tens of billions of dollars the company and its peers are pouring into artificial intelligence will pay off.

In the third quarter, Amazon Web Services generated $33 billion in revenue, a 20% increase from a year earlier, the company said in a statement on Thursday. The gain exceeded the 18% growth that analysts had expected and marked the biggest year-over-year rise since OpenAI’s ChatGPT came on the scene in late 2022.

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The results reinforce the logic that major technology companies such as Microsoft Corp. and Alphabet Inc.’s Google have been using to justify record spending levels on data center construction — that demand for AI is outstripping the supply of global computing capacity.

Amazon’s results came a day after investors punished Meta Platforms Inc. for projecting even greater spending in 2026. Unlike Microsoft and Google, Meta isn’t a major cloud-computing provider to outside customers. That means its spending spree could be riskier.

Amazon’s shares jumped 12% to $249.42 as the markets opened in New York on Friday, the biggest intraday jump since April. The stock’s performance had lagged behind that of its industry peers this year, with investors worrying that the company has yet to demonstrate enough benefit from its artificial intelligence products. In its most recent quarter, Microsoft’s Azure cloud business grew at almost twice the rate of AWS, while Google Cloud posted 33.5% growth.

“Clearly AWS continues to drive the bus here, with acceleration in growth and better-than-expected operating margin,” analysts with William Blair said in a research note after earnings. “The acceleration helps ease some of the narrative around the company’s lack of strategic vision or advantage in the emerging AI landscape.”

Chief Executive Officer Andy Jassy has pushed the company’s capital spending to a record in the quarter to keep up in an arms race with its biggest rivals.

Investor expectations for Amazon’s cloud business were relatively low heading into Thursday’s earnings report after the company in recent quarters cited constraints in getting new data centers online. Jassy and other executives had said they were optimistic about the business, though they stopped short of forecasting a reacceleration of growth.

Jassy opened a conference call with analysts after the results were released by cheering the prospects for AWS and rattling off figures on the impact of AI on the company’s businesses, most of which Amazon hadn’t disclosed previously.

The company estimates that Rufus, the shopping chatbot embedded in its retail apps, will help deliver an additional $10 billion in annual sales. Connect, the company’s call center product that is widely seen as its most successful software offering for office workers, is on track to pull in $1 billion in annualized revenue, Jassy said. Bedrock, the AWS marketplace for businesses to tap into AI models, could ultimately be as big a business as EC2, the computing service that is one of the cloud unit’s primary money makers.

“We have momentum,” he said. “You can see it.”

During the quarter that ended Sept. 30, Amazon’s total sales rose 13% to $180.2 billion, the company said in the statement. Analysts, on average, were anticipating $177.8 billion, according to data compiled by Bloomberg.

Under Jassy, Amazon has been working to improve the profitability of the retail business by stepping up automation and selling higher-margin ads and other services to online merchants. That work has receded from the headlines as investors focus on the company’s battle in the market for AI.

Like its biggest rivals, Amazon has invested heavily in data centers and chips to build and operate AI models capable of generating text or images and automating processes. Capital expenditures rose 61% to $34.2 billion in the quarter, Chief Financial Officer Brian Olsavsky said.

The power capacity of the AWS data center fleet has doubled since 2022, and Jassy said he expected it to double again by 2027. Last week, the unit suffered its biggest outage in years.

Though Amazon has sought to position its cloud business as a marketplace for a broad range of AI tools, for now, it has a lot riding on a single partner: Anthropic PBC, the maker of the Claude chatbot and software coding assistant.

Amazon is backing Anthropic with an investment of $8 billion, and built the startup a massive complex of data centers and custom AWS AI chips. That system, called Project Rainier, is up and running, the company said this week. Amazon said its Trainium2 chip was “fully subscribed” and represented a multibillion-dollar business.

Google recently announced a deal to provide Anthropic with some of its own chips.

In the third quarter, Amazon reported operating income of $17.4 billion, which included a $2.5 billion charge related to a legal settlement announced last month with the Federal Trade Commission over Prime subscriptions and $1.8 billion for estimated severance costs. The company said earlier this week that it would cut about 14,000 corporate workers and warned of further terminations in 2026.

Amazon projected that revenue in the holiday quarter would be $206 billion to $213 billion, meeting analysts’ estimates. Operating profit will be $21 billion to $26 billion, also in line with expectations.

In the third quarter, sales generated by the online store business increased 10% to $67.4 billion. Advertising unit revenue jumped 24% to $17.7 billion. Third-party seller services from merchants who use Amazon’s e-commerce site increased 12% to $42.5 billion.

–With assistance from Spencer Soper.

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