In the fast-moving artificial intelligence race, thriving sometimes isn’t good enough. This year, Amazon has learned that lesson as investors are still reluctant to give it credit for what many consider to be lackluster growth in its cloud computing division. Amazon’s stock has only increased by about 1% so far this year, far less than that of its Big Tech competitors and the S&P 500, which has increased by about 16%. This was as of Thursday’s close.
Amazon’s cloud division appears set for a robust recovery despite the lack of enthusiasm. The company’s biggest and most lucrative division, Amazon Web Services (AWS), saw a 17.5% increase in sales in the second quarter and a 20% increase in the third. Even though Alphabet’s Google Cloud and Microsoft’s cloud division are both growing at a 40% rate, those comparisons are inaccurate due to AWS’s size.
Amazon’s cloud business is booming
In the third quarter, AWS made $33 billion, far more than Microsoft’s Azure, which analysts estimate made about $23 billion. Big percentage gains are inherently more difficult to attain with larger bases. However, AWS’s surge to 20% revenue growth, its highest since 2022, points to a possible breakout in the near future. Despite the company’s lower-than-expected overall revenue outlook, Amazon’s stock surged 14% in after-hours trading after the report.
The primary driver behind AWS’s resurgence is evident: in order to satisfy the growing demand for artificial intelligence, Amazon is rapidly growing its cloud computing infrastructure. The winners will be those who can construct data centers the quickest, as industry leaders concur that “demand for AI computing power far outstrips supply.”
One of Amazon’s biggest projects is the $11 billion data center campus it built in Indiana for Anthropic, a significant Amazon partner and language model developer. This week, the business announced that the facility is now completely functional. According to Wedbush analysts, Anthropic sales will boost AWS’s revenue growth by almost 2 percentage points this year.
According to CEO Andy Jassy, Amazon has expanded its data center capacity by 3.8 gigawatts in the last year, which is “more than any of its rivals.” This provides a significant amount of power for AI chips. Capital spending is expected to reach approximately $34.2 billion this quarter, reach $125 billion for the year, and then increase once more in 2026, Chief Financial Officer Brian Olsavsky informed analysts. AWS will have enough processing power to support growth if it can avoid limitations like scarce electricity or chip shortages.
Featured Image Credit: Erik Mclean; Pexels: Thank you!
