Amazon’s stock has reached new all-time highs after a successful earnings report, putting the company on track to join the $2 trillion club. Key contributors to this success include Amazon Web Services (AWS) and advertising, which saw significant growth in the last quarter. Analysts predict that by 2024, these segments could generate a combined revenue of $160 billion, accounting for a quarter of Amazon’s total revenue and driving a 221% year-over-year growth in operating income.
The synergy between strong advertising growth, AI-driven acceleration in AWS, and improving cash flow margins has propelled Amazon’s stock to record levels. AWS saw a 4-point increase in year-over-year growth, reaching a $100 billion annualized run rate in the first quarter. Additionally, the company has hinted at continued growth with the introduction of ads in Prime Video and increased GPU supply.
Revenue in the first quarter beat estimates by $0.8 billion, marking four consecutive quarters of double-digit growth. Operating income growth was driven by North America and AWS, with the latter contributing over 61% of Amazon’s total operating income despite accounting for less than 18% of revenue. The company has also shown an impressive expansion of gross and operating margins, reaching double-digit operating margin for the first time.
AWS’s growth has been fueled by demand for generative AI offerings, with the company accumulating a multi-billion-dollar revenue run rate in the AI space. Management expects increased capex to support continued growth in this area, with a focus on meeting high demand for AI capabilities. Additionally, Amazon is working on increasing the availability of its in-house chips to meet the growing demand in the AI market.
Amazon’s advertising segment continues to be a strong revenue driver, with 24% year-over-year growth in the first quarter. Analysts are optimistic about the potential for further growth, especially with the introduction of ads in Prime Video. By leveraging ad revenue and incremental revenue from subscribers, Amazon is expected to see significant revenue growth in the coming years.
Overall, AWS and advertising are projected to exit 2024 with a combined $160 billion in annualized run rate, potentially unlocking more value for Amazon. The company’s valuation is supported by strong earnings and cash flow growth, making it an attractive investment opportunity. With a solid growth trajectory and potential for margin expansion, Amazon’s stock is poised for further gains in the future.
