Strong growth in Amazon.com Inc.’s cloud and advertising businesses paved the way to another impressive earnings and revenue beat today.

The company’s stock was moving higher in extended trading, even though its guidance for the current quarter came up short of analyst’s expectations. Amazon reported third-quarter earnings before certain costs such as stock compensation of $1.43 per share, easily beating Wall Street’s target of $1.14 per share. Revenue for the period increased by 11% from a year earlier, to $158.88 billion, topping the consensus estimate of $157.2 billion.

All told, Amazon delivered an operating profit of $17.4 billion, up from just $11.2 billion in the year-ago quarter. That was an encouraging sign, as it suggests that the company’s focus on efficiency and cost-cutting, which includes cutting 27,000 jobs since 2022, is having a positive impact on its bottom line.

As always, the most important growth and profit driver for Amazon was its cloud computing unit, Amazon Web Services Inc., which delivered sales of $27.45 billion, just shy of the Street’s target of $27.52 billion. Though analysts may have been expecting more, they were no doubt encouraged by the unit’s faster growth, with sales accelerating by 19% in the quarter, compared with just 12% growth one year earlier.

Amazon had been navigating a slowdown in the cloud last year, as customers trimmed their information technology spending budgets on heightened economic concerns, but the renewed acceleration suggests the worst of those fears are over.

AWS is still growing at a much slower clip than its main competitors. In their earnings calls this week, Alphabet Inc.’s Google Cloud posted revenue growth of 35%, while Microsoft Corp.’s Azure came in at 33%. Despite that, Amazon retains its significant lead in terms of market share.

The AWS unit delivered $10.45 billion in operating income, accounting for 60% of the company’s total profit. Analysts had forecast an operating profit of just $9.15 billion. Meanwhile, AWS’s operating margin was 38%, its widest since 2014 and well ahead of Google Cloud’s 17%.

In a conference call with analysts, Amazon Chief Executive Andy Jassy (pictured), who previously headed up the AWS unit, said the company’s artificial intelligence services are generating billions of dollars in annualized revenue, though he didn’t put a figure on that number.

“I believe we have more demand than we could fulfill if we had even more capacity today,” Jassy said. “I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply.”

Amazon is buying up as many chips as it can, though. The company’s capital expenditures jumped 81% from a year ago to $22.62 billion, and the vast majority of that increase is being directed towards buying up more data center infrastructure, including Nvidia Corp.’s powerful graphics processing units, which power AI products and services.

Over the last few months, AWS has launched multiple new generative AI tools and products in its cloud and e-commerce businesses, and it’s also said to be working on a new version of Amazon Alexa that will incorporate generative AI.

On the call, Amazon Chief Financial Officer Brian Olsavsky said the bulk of the company’s capex spending is going toward technology infrastructure.

Like its rivals, including Microsoft and Meta Platforms Inc., Amazon expects to accelerate its infrastructure spending in the next fiscal year. Jassy told analysts the company expects to spend $75 billion in fiscal 2024, and even more in fiscal 2025.

“The increase bumps are really driven by generative AI,” he said. “It is a really unusually large, maybe once-in-a-lifetime type of opportunity, and shareholders will feel good about this long term, that we’re aggressively pursuing it.”

The other key profit driver for Amazon is its advertising business, and that also did well, with sales up 19% from a year earlier to $14.3 billion.

Amazon’s ad business showed the most encouraging growth out of all of its rivals in that industry, though it remains much smaller than Google’s and Meta’s ad units. Meta said yesterday that its ad revenue grew 18.7% year-over-year, while Google’s rose 15%. Another key player in online advertising is Snap Inc., whose sales rose 15% from a year earlier.

Looking forward, Amazon said it’s expecting to deliver revenue of between $181.5 billion and $188.5 billion in the next quarter, which represents a growth rate of 7% to 11%. The midpoint of that range fell just short of the Street’s consensus estimate of $186.2 billion.

Still, investors were clearly happy enough to see the progress of AWS and the advertising business, for Amazon’s stock gained more than 5% in the hours after the report. In the year to date, Amazon’s shares are up 23%, just below the 27% gain in the broader Nasdaq index.

Photo: SiliconANGLE