Amazon beats revenue estimates by investing in AI

LOS ANGELES (AP) – Amazon reported a rise in its quarterly earnings on Thursday and beat revenue estimates, sending the company's shares higher in after-hours trading.

For the three months ended Sept. 30, the Seattle-based tech giant posted revenue of $158.9 billion, higher than the $157.28 billion expected by analysts.

Amazon said it earned $15.3 billion, more than industry analysts surveyed by FactSet had expected of $12.21 billion. Amazon earned $9.9 billion in the same period last year. Earnings per share were $1.43, above analysts' expectations of $1.14.

According to Amazon, net sales increased 11% compared to the third quarter of 2023.

Thursday's report offers a final look at Amazon's business before the start of the holiday shopping season, the busiest time of year for the retail industry.

“As we enter the holiday season, we are excited about what we have in store for our customers,” said Andy Jassy, ​​Amazon President and CEO. “We kicked off the holiday season with our biggest Prime Big Deal Days ever and the launch of a brand new Kindle range that significantly exceeds our expectations; and there’s so much more to come.”

The company expects fourth-quarter revenue to be between $181.5 billion and $188.5 billion, compared with analysts' forecast of $186.29 billion.

The better-than-expected earnings come after Amazon missed revenue estimates in its most recent quarter.

Amazon reported that its core online retail business generated $61.41 billion in third-quarter sales. These figures include sales from the company's popular Prime Day shopping event in July. Although Amazon isn't disclosing how much it raised from the 48-hour shopping bonanza, it said this year's event resulted in record sales and more items sold than ever before.

The e-commerce company hosted another discount shopping event for Prime members earlier this month, a strategy it introduced two years ago to get ahead of the holiday shopping season. Sales for this event will be included in Amazon's fourth quarter earnings report.

The company's results follow other earnings reports this week from tech giants including Microsoft, Meta and Google's parent company Alphabet.

Amazon Web Service, the company's cloud computing unit and key driver of its artificial intelligence ambitions, reported a 19% rise in revenue to $27.5 billion. The increase in sales comes as the company, like others of its caliber, is increasing its investments in data centers, AI chips and other infrastructure needed to support the technology.

Speaking to reporters in August, Amazon Chief Financial Officer Brian Olsavsky noted that the company spent more than $30 billion on capital expenditures in the first half of the year and that most of that went to AWS infrastructure. He said these investments are expected to increase in the second half of the year.

Just this month, Amazon said it was investing in small nuclear reactors, following a similar announcement from Google, as both tech giants look for new sources of carbon-free electricity to meet rising demand from data centers and generative AI. Meanwhile, last month the company signed a multiyear deal with chipmaker Intel that will develop some custom AI chips for AWS, in addition to the chips the company already makes itself.

Amazon's capital expenditures increased year-over-year to $22.62 billion from $12.48 billion, driven in large part by investments in technology infrastructure such as data centers and Nvidia GPUs for AI.

During an earnings call Thursday afternoon, Jassy said Amazon is using generative AI “pervasively” across its businesses, including AI-powered shopping in parts of Europe, Canada and the United States. Amazon also recently launched AI consumer shopping guides that help customers find products, he said, as well as an AI assistant that “provides tailored business insights to increase productivity and drive seller growth.”

“The increases here are really driven by generative AI,” he said on the call.

Jassy told investors that both AWS and AI require the company to invest upfront in data centers, network equipment and hardware. Many of these assets — such as data centers, he said — can be useful for decades.

“It's a really unusually large, perhaps once-in-a-lifetime opportunity,” he said, “and I think in the long run our customers, the company and our shareholders will be pleased that we're pursuing it aggressively.”

Regulators have been scrutinizing Amazon's other partnership with AI startup Anthropic, which uses AWS as its primary cloud provider and the company's custom chips to build, train and deploy its AI models. Amazon received good news in September when UK competition regulators approved its partnership with Anthropic.

However, the relationship and similar relationships remain under review by the Federal Trade Commission in the United States. Led by Big Tech critic Lina Khan, the FTC has filed an antitrust lawsuit against Amazon, accusing the company of stifling competition and charging excessive prices to sellers on its e-commerce platform.