AWS Cloud Computing, Gen AI Fuel Amazon’s Overall Numbers

Amazon Web Services joined its hyperscaler peers this week in delivering huge third-quarter cloud computing numbers that significantly boosted parent-company earnings.

In fact, the world’s largest cloud computing provider saw its highest profit margin in at least 10 years, even as revenue just missed analyst and shareholder expectations.

No matter to Amazon’s share prices, though — as of about 11:20 a.m. ET on Nov. 1, the day after Amazon announced its latest earnings round, the company’s stock was up a little more than 7%.

Analysts attributed the activity to the figures AWS brought to the table for Amazon as a whole. And, no surprise, Amazon executives pinned the quarter’s successes on demand for generative AI. The annualized revenue for that part of the AWS business stands to more than double year over year, Andy Jassy, CEO of Amazon and former CEO of AWS, told analysts on an Oct. 31 conference call. Jassy added that AWS, like its peers, has less AI capacity than it would like to serve, and that it could serve, but that the requisite software chips continue to experience supply problems.

On that note, chipmaker Intel still hasn’t caught up on the AI front and its latest earnings, released this week, reflected that slump. The company’s revenue dropped 6% year over year in its fiscal third quarter that ended Sept. 28 and net losses totaled $16.7 billion. Intel remains in a huge restructuring phase, which includes cuts in jobs and overhead, as it tries to crack the AI chip market against rivals such as Nvidia. One Canalys analyst said in mid-October that Intel is in “serious trouble.”

Related:Microsoft Cloud Revenue Soars as Hyperscalers See AI Boost

Cloud Computing at Amazon Web Services Chugs Along

But AWS, at least, wasn’t too slowed by the hiccups in the AI chip market (Intel does supply processors for AWS’ cloud computing services). The cloud computing behemoth still reported $10.45 billion in operating income. That figure accounted for 60% of Amazon’s profit, and surpassed analysts’ projections for $9.15 billion. 

On top of that, operating margin came in at 38%. That marks the most margin AWS has recorded since about 2014. As a comparison, Google Cloud reported a 17% profit margin; Microsoft does not report many metrics specific to Azure. Brian Olsavsky, chief financial officer at Amazon, said “measured” hiring contributed to the wider margin. Amazon and AWS have pulled back on filling roles in recent months.

Even so, some analysts expressed concern over Amazon’s huge jump in capital expenditures. AWS is pouring money into data center expansion, and all the requisite hardware and software needed to support generative AI, which cloud computing makes possible. Because of that, its capital expenditures for the latest quarter soared 81% from the year-ago period. Jassy expects the costs to keep on coming through at least 2025. 

“It is a really unusually large, maybe once-in-a-lifetime type of opportunity,” Jassy told analysts according to various transcripts of the call. “And I think our customers, the business and our shareholders will feel good about this long term.”

Amazon's Andy Jassy

AWS isn’t saying just how much money it’s making from generative AI, but Jassy did describe it as a “multibillion-dollar revenue run rate.”

“It’s growing more than three times faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly,” Jassy said.

AWS is not alone. Each of the global − and many independent − cloud computing providers is dumping dollars into the infrastructure needed for generative AI. As one example, Satya Nadella, chairman and CEO of Microsoft, which owns a majority stake in OpenAi, said this week his company’s AI practice will log an annual revenue run rate of $10 billion in the next quarter. In terms of time-to-value, that marks a record for any Microsoft business.