Amazon's Earnings Soar: Surpassing Expectations Amid AI and Global Expansion
1min read Amazon recently reported its third-quarter results, surpassing market expectations with noteworthy growth in several divisions. The company's net income experienced a robust rise, climbing 6.8% on a quarter-on-quarter basis and 11% year-over-year, reaching $158.8 billion. Particularly striking was the international sales performance, which surged 12% year-on-year to $35.9 billion, while North American sales grew by 9% to $95.5 billion. The Amazon Web Services (AWS) segment also posted an impressive 19% year-over-year increase, amounting to $27.5 billion, although it lagged behind its peers like Google Cloud and Microsoft Azure in growth rate.
The company's promising outlook for AWS, underpinned by anticipated compound annual growth rates of 19.5% until 2028, paints a favorable future. The accelerated investments in artificial intelligence (AI) by large tech firms aiming to enhance cloud services could further bolster AWS's growth potential.
Amazon's global retail operations benefit from declining inflation rates in many developed and emerging countries. Controlled inflation positively impacts the retail sector, enabling more favorable credit conditions and boosting consumer confidence. The company's advertising revenue also witnessed a considerable uptick of 23%, hinting at potential positive surprises moving ahead. Furthermore, Amazon demonstrated excellent expense management, with operating expenses rising only 0.9% quarter-on-quarter and 6.4% year-over-year to $60.5 billion.
Optimism about future performance remains high as Amazon invests heavily in data centers and next-generation GPUs, focusing on AI development. CEO forecasts approximately $75 billion in investments for 2024, with increased expenditures anticipated for 2025. Although most capital expenditure currently supports infrastructure, advancements in e-commerce and cloud services, including AI-driven innovations like a new Alexa version, are noteworthy.
Amazon's management excels in balancing impressive revenue growth with stringent expense control. The company's net income surged 55% year-on-year to $15.3 billion. Projections for the fourth quarter of 2024 indicate net income of $181.5 billion to $188.5 billion, marking a 7% to 11% increase, and operating income between $16 billion and $20 billion, exceeding last year's $13.2 billion.
The valuation analysis indicates that Amazon's current price-to-earnings ratio, standing at 36x, is among the lowest over the past three years, reflecting its strengthened profitability. Despite Amazon's difficulty in consistently exceeding market expectations, and compressed valuations due to high interest rates, this poses an attractive opportunity amid industry-wide phenomena affecting peers like MercadoLibre, Alibaba, and Sea.
However, key risks loom, including potential policy changes under a new U.S. administration that could impose higher tariffs, impacting profitability. Returns on AI investments remain uncertain, with a recent survey highlighting challenges faced by organizations in successfully implementing AI projects. Only 26% reported successful AI deployments. Thus, the overall investment thesis requires careful consideration, with quantitative tools advising a balanced approach to holding the stock.