Amazon increased capital expenditures by 81% and bet on AI infrastructure in the third quarter of 2024

Amazon exceeded analysts’ expectations for the third quarter of 2024, showing an increase in earnings to $1.43 per share against a forecast of $1.14 and increasing revenue to $158.88 billion, which was higher than the expectations of LSEG analysts – $157.2 billion. The main points of growth were cloud Amazon Web Services (AWS) division and advertising business, which have outpaced Amazon’s e-commerce business. The company has also significantly increased its investment in infrastructure and equipment for AI projects.

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AWS brought in revenue of $27.4 billion, which was slightly below StreetAccount analysts’ expectations of $27.5 billion. However, AWS’s performance improved, with revenue up 19% for the quarter, up from just 12% a year ago. In 2023, the company’s customers cut costs amid economic risks, but this year AWS stabilized growth and strengthened its position in the cloud services market. However, AWS’s growth rate remains lower than competitors such as Microsoft Azure and Google Cloud, which saw revenue increases of 33% and 35%, respectively.

Amazon’s capital expenditures for the third quarter increased by 81% year-on-year, from $12.48 billion to $22.62 billion, due to the expansion of data centers and the purchase of Nvidia graphics processors (GPUs) for the development of AI projects. The investment is intended to strengthen Amazon’s infrastructure as AI plays a critical role in the company’s strategy. As CFO Brian Olsavsky noted, a significant portion of expenses for 2024 will be aimed at maintaining and developing technological infrastructure.

Amazon CEO Andy Jassy said the company plans to spend about $75 billion on capital expenditures this year and will likely continue to increase those investments in 2025. He emphasized that rising costs are associated with the development of generative AI, calling it “a unique opportunity, perhaps a once-in-a-lifetime opportunity.” Jesse expressed confidence that shareholders will appreciate the long-term prospects of such investments, since Amazon considers this direction to be strategic.

Amazon’s advertising segment also saw strong revenue growth in the third quarter, to $14.3 billion, up 19% year-over-year. Advertising has become an increasingly important part of Amazon’s revenue mix and is significantly outpacing the growth of its retail business, underscoring the importance of diversifying the company’s revenue.

Amazon and Apple completed a week of corporate reporting from leading technology companies. Earlier, Alphabet, Microsoft and Meta✴ reported financial success: Alphabet demonstrated revenue growth due to cloud services, while Microsoft, on the contrary, disappointed investors with a sharp decline in share price to the lowest level in the last two years, which was a consequence of increasing its spending on infrastructure. Meta✴ beat forecasts but warned that its infrastructure costs would also rise significantly next year.

Among the tech giants that make money from online advertising, Amazon posted the fastest revenue growth, although the overall size of its advertising business is still behind industry leaders Meta✴ and Google. In the third quarter, Meta✴’s ad revenue grew 18.7%, Google’s ad revenue grew 15%, and Snap’s revenue increased 15% year-over-year. Against this background, Amazon’s growth (19%) looks especially convincing.

In its Q4 guidance, Amazon expects revenue in the range of $181.5 billion to $188.5 billion, representing growth of 7% to 11% year-over-year. The midpoint of the forecast range is $185 billion, which is only slightly below LSEG analysts’ expectations of $186.2 billion. Amazon’s operating profit for the third quarter rose 56% to $17.4 billion, indicating the success of the company’s efforts to reduce costs and improve efficiency . Since the beginning of 2022, the company has laid off more than 27 thousand employees, thereby continuing to optimize its costs.