Amazon's Stock Soars as Q3 Earnings Surpass Expectations Amid Strategic AI Investments and Bezos's Share Selloff
As of last week, Amazon (AMZN) shares rose by 6.19%, marking a weekly increase of 5.38% and a year-to-date growth of 30.27%. The company's current market capitalization stands at approximately 2,081.236 billion USD. The Royal Bank of Canada has maintained its rating for Amazon at "outperform," adjusting the target price from $215.00 to $225.00, reflecting continued confidence in Amazon's market performance.
On Friday, Amazon's stock opened with a significant surge, achieving its largest intraday rise since February 2. At press time, shares were up over 6%, trading at $198.91. This follows Amazon's announcement of strong third-quarter earnings post-market on Thursday. The company reported Q3 revenues of 158.9 billion USD, an 11% year-over-year increase, surpassing market expectations. Operating income also exceeded forecasts, coming in at 17.4 billion USD, outpacing the anticipated 14.7 billion USD. Emarketer analyst Sky Canaves attributed this success to Amazon's robust performance across its e-commerce, advertising, and cloud services sectors.
The earnings report underscores CEO Andy Jassy's successful efforts in cost-cutting and streamlining Amazon's logistics operations, which has afforded the company the capability to significantly invest in new data centers to meet the rising demand for AI services. CFO Brian Olsavsky remarked during the earnings call that Amazon plans to allocate up to 75 billion USD in capital expenditures for 2024, with a major focus on technological infrastructure. Jassy projected that expenditures in the ensuing year could potentially increase further.
Jassy emphasized that generative AI represents an enormous, perhaps once-in-a-lifetime opportunity. He stated, "Our customers, businesses, and shareholders will appreciate our long-term goals as we vigorously pursue this opportunity." In greater detail, Amazon's cloud division, AWS, saw revenues climb by 19% year-over-year to 27.5 billion USD in the third quarter, aligning with market projections. This marked the fifth consecutive quarter of accelerating growth for AWS.
AWS leads its competitors, Google and Microsoft, in the cloud infrastructure sector, serving as a key profit driver for Amazon. In the third quarter, AWS contributed 10.4 billion USD to operating profit, accounting for 60% of Amazon's total profit, with a record operating margin of 38%. Analysts had anticipated a figure of 91.2 billion USD, making the actual results significantly more favorable.
Despite concerns regarding increased spending, Amazon's track record of substantial investments yielding excellent returns bolsters investor optimism. Edward D. Jones & Co. analyst Brian Yarbrough highlighted this confidence: "People may get anxious about Amazon's increased expenditure, but they have a solid history of turning heavy investments into substantial returns."
Additionally, Amazon's online store revenues for the third quarter grew by 7%, reaching 61.4 billion USD. Meanwhile, the thriving advertising segment saw sales expand by 19% to 14.3 billion USD. Operating costs increased by 7.2% to 141.5 billion USD, marking the seventh consecutive quarter where revenue growth outpaced cost increases. The company reported a workforce exceeding 1.55 million full-time and part-time employees, a 3% increase.
Looking ahead, Amazon forecasts fourth-quarter revenues as high as 188.5 billion USD, outstripping analyst predictions of 186.4 billion USD. The company also predicts operating income for the next quarter to be around 18 billion USD, exceeding the average analyst forecast of 17.5 billion USD. In response to the earnings report, Amazon's shares rose 5.8% in after-hours trading.
On a separate note, Amazon founder Jeff Bezos recently divested over 16 million shares, amounting to more than 3 billion USD. This recent transaction brings his total share sales this year to over 13 billion USD. Bezos's strategic sell-offs around the 200 USD price level, where Amazon shares marked record highs in July since its Nasdaq listing in 1997, continue to attract market attention amidst the stock's valuation fluctuations.