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Amazon rallies on cloud optimism as it chases Microsoft for AI business

Photo: Amazon increased 7% on Friday due to growth in its cloud business, which is becoming more profitable. The company competes with Microsoft for a significant portion of the rapidly expanding artificial intelligence industry.

With its shares trading at $128, the e-commerce behemoth (AMZN.O.) was poised to increase its market valuation by about $90 billion. Alphabet (GOOGL.O) was down around 1.3%, while Microsoft (MSFT.O), a smaller cloud rival, surged 1.5%.

The CEO of Amazon, Andy Jassy, stated on Thursday that the company’s cloud business was stabilizing and that significant expansions with current clients and new business deals will probably support growth in the last three months of the year.

He also praised the potential of AI for Amazon Web Services (AWS), predicting “tens of billions of dollars in revenue over the next several years” due to the technology.

Wall Street applauded the encouraging remarks for the company that accounts for nearly all of Amazon’s profits but has stalled due to cost-cutting measures taken by consumers during the epidemic.

Bernstein analysts wrote in a client note that “AWS growth sounds ready to re-accelerate even without AI,” so tech investors should exhale with ease. Based on LSEG data, over 26 brokerages increased their price targets for the company, bringing their consensus estimate up to $173.

Despite a 40% increase in value this year, Amazon shares have dropped by over 8% in the last two days following Alphabet’s (GOOGL.O) warning that cloud clients were cutting down on their spending.

For the first time in over two years, Amazon reported quarterly growth in cloud computing during July–September.

Dan Romanoff, an analyst at Morningstar, stated, “Amazon Web Services optimization has stabilized, although growth fell slightly shy of our expectations.”

AWS’s growth of 12.3% lagged behind Microsoft’s (MSFT.O) Azure cloud division, which had a 29% increase above market forecasts. During that time, Google Cloud expanded by 22.5%.

Amazon is trading at 38.49 times its projected 12-month earnings, while Alphabet is at 18.66 and Microsoft is at 27.85.

Undoubtedly, Amazon has a more extensive cloud business than Google and Microsoft. However, the e-commerce company is perceived as a slacker in the AI race, which Microsoft is dominating with its OpenAI wager and emphasis on large customers already utilizing its services.

In an attempt to catch up, Amazon launched its Bedrock AI service in September, which has attracted thousands of users, and in September, signed an agreement to invest up to $4 billion in chatbot creator Anthropic.

Tejas Dessai, a Global X analyst, stated that “generative AI is a massive catalyst that could re-ignite growth within the (AWS) franchise.” “We see some major partnerships secured in this quarter, as key towards driving that growth in the coming quarters.”

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