In the third quarter, Amazon Web Services reported $10.4 billion in operating income, a 50% increase from the previous year, exceeding $10 billion for the first time, and contributing more than 60% of Amazon’s overall operating profits. The revenue for AWS also rose by 19% to reach $27.4 billion in the same quarter. CEO Andy Jassy noted a significant reacceleration of AWS growth over the past four quarters, attributing it to the role of artificial intelligence (AI) in driving the growth both directly and indirectly.
Jassy explained that AWS customers are focusing on modernizing their infrastructure by transitioning from on-premises to the cloud. This modernization allows companies to save money, innovate faster, and optimize their engineering resources. It also enables them to better organize their data in preparation for generative AI applications at scale. According to Jassy, it is challenging to be competitive in generative AI if the data is not stored in the cloud.
Despite going through a leadership transition earlier in the year, with Matt Garman taking over as CEO of AWS, Amazon’s cloud division continues to show strong performance. The company achieved a new high of 38.1% operating margin in the third quarter. In comparison, Google Cloud reported a quarterly operating margin of 17.1%, generating $1.95 billion in profits on $11.4 billion in revenue. Microsoft also posted a 33% increase in revenue from Azure and other cloud services, with a significant portion of the growth coming from artificial intelligence.
Amazon CFO Brian Olsavsky highlighted various factors contributing to the improved margins for AWS, including increased demand for services, implementation of efficiencies and cost controls, and changes in server life expectancy to reduce costs. The company anticipates around $75 billion in capital expenditures in 2024, primarily focused on technology infrastructure related to AWS. Jassy hinted at even higher capital spending in 2025, with a particular focus on generative AI, which he believes will ultimately yield significant returns.
Jassy also mentioned the fast-growing AI business within Amazon, which is experiencing triple-digit growth year-over-year and expanding at a much faster rate than AWS at a similar stage of evolution. With the increasing investment in AI technology, Jassy expressed confidence in the long-term benefits and value creation for the company. Overall, Amazon Web Services continues to drive Amazon’s overall profitability, with significant growth potential and a strategic focus on AI innovation and modernization of cloud infrastructure.
