Amazon tops cloud expectations on strong AI demand, shares dip
Amazon's Cloud Growth and Financial Performance
By Deborah Mary Sophia and Greg Bensinger
April 29 (Reuters) - Amazon.com on Wednesday reported cloud sales growth above Wall Street expectations, driven by strong enterprise spending as companies continue to devote tremendous resources to their artificial intelligence efforts.
Quarterly Results and Market Reaction
Still, shares dipped about 3.7% in extended trading after it projected current-quarter operating income between $20 billion and $24 billion, a slightly wider downside range from the current midpoint estimate of $22.62 billion, and after sales growth in rival Alphabet's cloud division outpaced the Seattle company.
Revenue at Amazon Web Services (AWS) jumped 28% to $37.6 billion in the first quarter, compared with analysts' average estimate of a 25.1% increase to $36.6 billion, according to LSEG. Net sales overall grew to $181.5 billion.
AI Partnerships and Investor Sentiment
Amazon - the world's largest cloud services provider - has boosted investor confidence by deepening its partnership with the two biggest AI firms, OpenAI and Anthropic, within days of each other. The firm is working overtime to reassure investors that its AI infrastructure spending will generate returns in the near term.
"The significant reacceleration in AWS sales growth is the standout story," said Jesse Cohen, senior analyst at Investing.com, adding that Amazon customers "are fully embracing new workloads, especially in AI."
Competition from Alphabet and Market Analysis
However, Alphabet's shares were up 6% in post-market action, after it said its Google Cloud division's sales grew 63% to $20 billion in the first quarter, exceeding estimates for a 50% rise. Gil Luria, a D.A. Davidson analyst, noted that for AWS, "the much better growth rate at Google Cloud may be a slight disappointment."
Capital Expenditures and AI Investment
For the period ended March 31, Amazon's capital expenditures were $44.20 billion, up more than 76% from the year-earlier period, and above analysts' estimate of $41.40 billion. In February, Amazon projected about $200 billion in such spending for the year, an initial shock to investors.
The roughly $600 billion that Big Tech is expected to pour into AI this year - a historic outlay that has dented cash flows at these companies - is testing investors' patience, even as companies say that it is necessary to increase computing capacity as strong AI demand outstrips supply.
CEO Andy Jassy said in his shareholder letter this month that much of the company's 2026 spending will be monetized over 2027 and 2028.
Big Cloud Partnerships
BIG CLOUD PARTNERSHIPS
OpenAI and Anthropic Deals
On Tuesday, Amazon made available all of OpenAI's latest models and its coding agent, Codex, on AWS, taking advantage of loosened ties between the ChatGPT maker and cloud rival Microsoft.
Last week, Amazon struck a deal to invest up to $25 billion in Anthropic, while the Claude creator committed to spending more than $100 billion on AWS in the next 10 years.
The announcements, coupled with a disclosure earlier this month that AI services at AWS were generating more than $15 billion in annualized revenue, have helped push Amazon's stock up some 14% so far this year, putting it among the best performers in the "Magnificent 7" group of tech mega-caps.
Future Revenue Forecast and Retail Initiatives
Amazon forecast current-quarter revenue between $194 billion and $199 billion, compared with the analysts' average estimate of $188.9 billion, according to LSEG. That factors in a slight negative effect from unfavorable foreign exchange rates.
At its retail business, Amazon has been investing in expanding same-day delivery to more towns and small cities, and has sharpened its focus on grocery delivery to better compete with supermarket chains such as Walmart and Kroger.
Advertising and Workforce Changes
Ad sales, an area of huge growth for Amazon, jumped 24% year-over-year to $17.2 billion. The company has been putting ads just about anywhere it can, including in grocery shopping carts and Prime Video content.
Amazon has been trimming corporate jobs, including 16,000 in January, across a broad swath of roles. However, its total workforce was down only 1,000 from the end of last year.
(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila and David Gaffen)
