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Amazon’s Q3 Earnings Exceed Expectations, Driven by AWS and AI Investments

Amazon’s (AMZN) third-quarter earnings surpassed analyst expectations, driving shares up by over 7% on Friday.

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The company reported earnings of $1.43 per share, beating the anticipated $1.16, and revenue of $158.9 billion, slightly above forecasts. This performance helped calm investor concerns regarding the profitability and future of Amazon's various business segments, especially amid ongoing expenses tied to artificial intelligence (AI) and cloud infrastructure investments.

Operating income reached $17.4 billion, easily outpacing the expected $14.7 billion. CEO Andy Jassy credited cost efficiencies across Amazon's e-commerce and AWS segments for the improvement, pointing to initiatives in automation and fulfillment as significant contributors.
AWS and AI Drive Growth
Amazon Web Services (AWS), the company’s high-margin cloud division, saw revenue rise 19% year-over-year to $27.5 billion, fueled in part by demand for AI capabilities. Notably, Amazon is investing heavily in technology infrastructure, with most of its $75 billion capital expenditure aimed at supporting AI. Jassy noted that Amazon’s AI segment is growing three times faster than AWS did at a comparable stage, positioning it as a promising future revenue stream.

Amazon's cloud service continues to evolve with new generative AI features, helping it maintain a competitive edge in the fast-paced tech landscape. “AWS has rolled out nearly twice as many machine learning and generative AI features as other leading cloud providers in the past 18 months,” Jassy said. This investment in AI has boosted customer interest, encouraging more businesses to migrate from on-premises setups to the cloud.

Strong Performance in E-Commerce and Advertising
Amazon’s North America e-commerce division grew 9% to $95.5 billion, while international sales rose 12%, totaling $35.9 billion. Digital advertising revenue saw a 19% increase, contributing $14.3 billion to the overall revenue. These results reflect consumer demand recovery and Amazon’s commitment to improving the cost-efficiency of its services.

This quarter’s performance also alleviated concerns about the impact of higher spending on Amazon’s Project Kuiper, a satellite internet initiative. While the company’s guidance for the upcoming holiday season was modest, projecting revenues between $181.5 billion and $188.5 billion, analysts remain optimistic, especially given Amazon’s record-breaking 11% profit margin across all segments.

A Compelling Outlook for Investors
Following the earnings release, several analysts revised their price targets, with Wedbush increasing it to $250, underscoring Amazon’s AI growth potential. JP Morgan (JPM) analysts echoed this sentiment, stating confidence in Amazon’s pathway to monetizing its AI advancements via AWS.

Amazon’s stock is now up more than 31% year-to-date, a robust performance attributed to the company’s rapid profitability gains and strategic AI investments. As the company continues to strengthen its operational base, Amazon remains a strong choice for investors looking at sustained growth in tech, retail, and AI sectors.


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