Amazon.com Inc.'s cloud unit posted its biggest sales growth in a year, a sign that the retailer's most profitable unit is recovering from a slump as companies They resume spending on technology projects, including artificial intelligence services.
Despite the good performance of the cloud, the company's sales forecast for the current quarter fell short of estimatesreflecting concerns for the core e-commerce business as consumers continue to spend cautiously.
In recent years, CEO Andy Jassy has cut costs and focused on the profitability of Amazon's online shopping business, laying off thousands of people and promoting a more efficient warehouse network. At the same time, it has backed big investments in artificial intelligence services that Amazon expects to generate tens of billions in revenue in the coming years. Those sales are starting to materialize.
The Seattle company obtained in the first quarter an operating profit of US$15.3 billion. Revenue increased 13%, to US$143.3 billion, in the period ending March 31, as reported by Amazon on Tuesday in a statement. Both figures exceeded analysts' estimates.
Sales of the Amazon Web Services cloud unit amounted to US$25 billion, 17% more than a year before. Analysts estimated AWS sales of $24.1 billion.
“We are seeing strong signs of demand from our customers on the AWS side,” Chief Financial Officer Brian Olsavsky said on a call with reporters. “They are signing longer deals, with larger commitments, many with generative AI componentsOlsavsky said generative AI now represented a “billion-dollar revenue run-rate business” for Amazon, the first time the company has publicly put even a ballpark figure on that franchise.
This will have a cost. AI chatbots, data analysis tools, and other programs that respond to user queries They are only possible thanks to massive quantities of cutting-edge computer chips. Olsavsky said Amazon's capital expenditures would “increase significantly” in 2024, primarily to support AWS growth, including generative AI. The company has said it will spend more than $150 billion to build and operate data centers in the coming years..
Cloud unit sales growth slowed to a record low last year, as companies cut technology spending and tried to curb IT bills that skyrocketed during the pandemic. Investors are betting on a rebound this year, especially after strong results last week from Microsoft Corp. and Alphabet Inc.'s Google, Amazon's two main rivals in the computing power and data storage rental business.
AWS generated a profit of US$9.42 billion in the quarter. The unit's operating margin – 37.6% – is the widest since Amazon began disclosing sales for its cloud business. The division carried out the largest layoffs in its history last year, and has continued to selectively trim its ranks even as it hires in other areas.
Amazon said revenue will be $144 billion to $149 billion in the period ending in June.. Analysts, on average, were forecasting $150.2 billion.
The company's main e-commerce business posted sales of $54.6 billion in the quarter, slightly below analyst estimates. Olsavsky said consumers continue to reduce their purchases to save money. Buyers are asking for more consumables, which they need quickly, but also cost less than other categories, said. That puts pressure on the business's profitability because Amazon has to process and deliver more units.
The slowdown in e-commerce sales has also pushed Amazon to seek greater growth from other lines of business. For example, advertising revenue increased 24%, to US$11.8 billion. The results reflect the first quarter since Amazon introduced video advertising on the Prime Video streaming service.
Amazon shares gained 3.2% to $180.59, at the opening of the markets in New York. As of Tuesday's close, shares were up about 15% this year.
