AWS Saves Amazon

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24/7 Wall St. Insights

• Amazon.com Inc. ( NASDAQ: AMZN ) earnings upset investors, even though they beat expectations.
• Perhaps those investors are concerned about the wrong thing.
• Also: Discover the next Nvidia .

Investors were upset by earnings at Amazon.com Inc. ( NASDAQ: AMZN ), which is odd because they beat most expectations. Revenue rose 10% from the same quarter a year ago to $148 billion. Its profits were $13.5 billion, much higher than the $6.7 billion a year ago.

The stock sold off because investors worried about rising artificial intelligence (AI) expenditures. However, almost every mega tech company is doing that. Amazon’s capex rose to $17.6 billion, up by almost 50%.

Amazon's ancient e-commerce business has stopped being the center of earnings releases. The AWS segment pushes Amazon’s stock up or down over the long term, which may still be true. No one knows when big tech AI investments, which run into the billions of dollars, will pay off. It could be a year or more. So, the timing of AI's future contribution to earnings is a guess.

AWS is still the largest cloud business in the world based on revenue. Its primary competitor, Microsoft’s Azure, stumbled when it released earnings. If that should have worried anyone about the success of AWS, it should not have.

AWS revenue hit $26.3 billion, up from $21.1 billion a year ago. That means AWS is only 18% of Amazon’s revenue. The AWS operating income was $9.3 billion, up from $5.4 billion. That means that AWS was 64% of Amazon’s entire operating income.

Maybe people should stop worrying about Amazon’s AI investment and look at its dominant AWS numbers.

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