Amazon's cloud group grows more profitable, but its top line suffers

Amazon Web Services increased its operating profit margin, providing higher operating income than anticipated, while revenue was slightly lower than expected.

Amazon announced on Thursday that its cloud division increased revenue by 12% year over year in the third quarter. Analysts expected the world's leading provider of computing and storage services offered by remote data centers to perform better.

The result shows that the category, one of the most active segments of the mature information-technology sector, has received some respite from the economic constraints posed by rising costs and increased interest rates.

According to a release, revenue from the Amazon Web Services segment was $23.06 billion during the quarter. This is less than the $23.2 billion estimate among StreetAccount's polled analysts. Growth was scarcely faster than in the previous quarter, capping a six-quarter streak of slowing.

During a?call with reporters, Amazon's finance director, Brian Olsavsky, declined to claim that AWS growth has stopped.

"I wouldn't quite characterize it that way," he stated. "Just because we're in a delicate situation, you know." There are several cross-streams going on right now. We have some cost-cutting work that is starting to slow down." Simultaneously, Olsavsky told reporters that clients are giving Amazon new workloads to run on the cloud.

On the company's earnings call, Amazon CEO Andy Jassy stated that customers are increasingly using AWS's Arm-based Graviton chips to cut core processing costs. They've also shifted from on-demand spending to long-term commitments lasting one to three years that come with reduced prices.

According to Jassy, some firms planned to begin big cloud migrations in 2023 but postponed such plans.

Amazon had a more upbeat take on the profitability of its cloud business. It earned $6.98 billion in operating income, up 29% from the previous year and far more than the StreetAccount estimate of $5.63 billion. Amazon's total revenue was $11.19 billion in operating profits. AWS's operating margin increased to 30.3%, the highest in two years.

During the results call, Olsavsky stated that job layoffs and slower hiring have improved AWS's margin profile.

AWS began selling its Bedrock service during the quarter for running generative artificial intelligence models that produce text in response to a few words of human input. In addition, Amazon said that AI startup Anthropic would train models using AWS' Trainium chips, a technique commonly accomplished on Nvidia graphics processing units. Amazon announced a $4 billion investment in the startup, which would sell models through Bedrock.

Alphabet, Google's parent company, announced 22% cloud growth earlier this week, while Wall Street expected roughly 26%. After eight quarters of declining growth, Microsoft's Azure revenue climbed by 29%, exceeding the 26% consensus.

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