Amazon’s Cloud Division Rebounds As Company Invests Heavily

Amazon which recently struck a $2 billion deal with the Australian government to build a “top secret” cloud service for the country’s intelligence services, has seen its cloud business – as well as e-commerce division – being the main growth drivers in its most recent quarter.

The Amazon Web Services cloud division, which is also relied on by several major retailers in Australia, suffered record low sales growth last year.

However, it is now regaining momentum. Cloud unit revenue jumped 19 per cent to $27.5 billion (A$41.8 billion) in the third quarter. Operating income generated by the unit was $10.4 billion (A$15.81 billion), which exceeded analysts’ average projection of $9.12 billion (A$13.86 billion).

Amazon’s key cloud rivals, Google and Microsoft. also posted growing cloud sales. Google posted quarterly cloud sales grew to $11.4 billion (A$17.33 billion), a 35 per cent increase from the year-earlier period.

Microsoft said that revenue from its cloud business, its fastest-growing division, increased by 22 per cent to $38.9 billion (A$59.19 billion), and Azure now had around 39,000 customers globally, up 80 per cent year-over-year.

In the third quarter, Amazon’s total revenue increased 11 per cent to $158.9 billion (A$241.51 billion). Operating profit was $17.4 billion (A$26.45 billion), significantly beating the average of $14.7 billion (A$22.34 billion) that analysts had estimated.

Amazon’s capital expenditures surged 81 per cent year-over-year from $12.48 billion (A$18.97 billion) to $22.62 billion (A$34.38 billion) as it continues to invest in data centres and equipment like Nvidia GPUs to power its AI products.

Its CEO Andy Jassy said the company plans to spend about $75 billion (A$113.99 billion) on capex in 2024 and that he expects the company to spend more in 2025. “The increase bumps here are really driven by generative AI,” said Jassy during a call with analysts.

He added that generative AI was “a really unusually large, maybe once-in-a-lifetime type of opportunity. And I think our customers, the business, and our shareholders will feel good about this long term — that we’re aggressively pursuing it.”

Amazon reported revenue from the online store unit increased 7 per cent to $61.4 billion (A$93.32 billion) in the period ended September 30, while sales at its advertising unit rose 19 per cent from a year earlier to $14.3 billion (A$21.73 billion).

It has projected strong growth in the quarter ending in December. It said that operating will be about $18 billion (A$27.36 billion), more than the average estimate of $17.5 billion (A426.6 billion) by analysts. Fourth-quarter sales will be as much as $188.5 billion (A$286.5 billion), more than the projected $186.4 billion (A$283.31 billion) that analysts estimated, reported Bloomberg.

“As we get into the holiday season, we’re excited about what we have in store for customers,” said Jassy. “We kicked off the holiday season with our biggest-ever Prime Big Deal Days and the launch of an all-new Kindle lineup that is significantly outperforming our expectations; and there’s so much more coming.”