Amazon Stock: Q1 Report Shows Big Earnings Gains, AI Boosting Cloud

Amazon stock gained in Wednesday trading as investors digested the tech giant’s first quarter earnings report. Sales and earnings for Amazon (AMZN) exceeded expectations but the e-commerce and cloud-computing giant gave a lighter-than-expected sales forecast for its June quarter.

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Amazon said late Tuesday that it earned 98 cents per share in its March-ending quarter from sales of $143.3 billion, up 13% year-over-year. On average, analysts projected the Seattle-based company would earn 84 cents per share on sales of $142.7 billion, according to FactSet.

For the same period a year earlier, Amazon posted earnings of 31 cents per share on sales of $127.4 billion.

Sales for the company’s Amazon Web Services cloud-computing division grew 17% year over year to $25 billion in the quarter. That beat consensus expectations of roughly 15% year-over-year sales growth for the closely watched business.

For the current quarter, Amazon guided for sales of $144 billion to $149 billion. Analysts were looking for $150.12 billion in sales for the June-ending quarter, according to FactSet.

On the stock market today, Amazon stock climbed more than 2% to close at 178.86.

Amazon Stock: Strong Quarter For AWS

In the company’s news release, Chief Executive Andy Jassy said AWS is at a $100 billion annual revenue run rate.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate),” Jassy said.

On the company’s analyst call, Jassy added that AWS has a “multibillion-dollar revenue run rate” related to AI.

Amazon is the largest provider of cloud-computing services to businesses. With this report, Amazon held its lead against similar sales growth accelerations by its main rivals, Microsoft (MSFT) and Google-parent company Alphabet (GOOGL).

Evercore ISI Mark Mahaney wrote to clients Tuesday that “this marked the first quarter since Q3:22 that AWS (total dollar) revenue growth surpassed that of Azure, which changes the cloud industry leadership narrative.”

AWS sales growth has accelerated in back-to-back quarters now for the first time since an industrywide slowdown that began in early 2022. Plus, AWS — which has long been Amazon’s main profit driver — is becoming even more profitable. Operating income from the division jumped 84% to $9.4 billion. Operating margin for AWS climbed to 37.6%, compared with 24% for the same quarter in 2023.

Amazon Operating Income Beats Views

Also notable in the report: Amazon’s international retail operations posted operating income for the first time since 2021. The division swung to a $900 million operating profit compared with a $1.2 billion loss in the first quarter of 2023. Sales in the segment increased 9.6% year over year to $31.9 billion.

The firm’s North American operations, meanwhile, contributed $5 billion in operating income, up 450% from a year earlier. Sales advanced 12% year over year to $86.3 billion.

Overall, Amazon posted $15.3 billion in operating income for the first quarter, well ahead of the $11.3 billion operating profit analysts expected, according to FactSet.

Meanwhile, there was some speculation heading into the report that Amazon could follow the lead of fellow Big Tech firms Meta Platforms (META) and Google by instituting a dividend. But there was no mention of a dividend in the company’s announcement.

Asked about this on the earnings call with analysts, Chief Financial Officer Brian Olsavsky said Amazon’s top priority remains investing in long-term growth for the business. The company expects higher capital expenditures this year as it builds out AI-capable data centers.

Why Amazon Stock Is ‘Relatively Muted’ After Q1

Still, analysts said the lack of a dividend may be contributing to the lack of excitement on Wall Street following the report. Analysts with William Blair wrote Wednesday that investors were “effectively expecting” the overall results Amazon posted.

“Add to this a difficult trading environment for megacap tech stocks coming off a heady 2023, comments around incremental spending to support AI, and no signs of a dividend any time soon, and shares are likely to remain relatively muted on this print,” William Blair’s Dylan Carden added in the client note.

Carden added the he was “encouraged” by the company’s commentary that it can continue to grow and improve margins at the same time.

Elsewhere, Amazon’s advertising business grew 24% year over year to $11.8 billion in sales. That was just ahead of expectations of $11.7 billion, according to FactSet. In the news release, Jassy said ad sales “continue to benefit from the growth of our stores and Prime Video businesses.”

Online stores sales grew 7% year over year to $54.7 billion, in line with consensus expectations.

Despite lower-than-expected sales guidance, Amazon did provide an outlook for operating income that was roughly in line with expectation. Amazon expects operating income of $10 billion to $14 billion in its June quarter, compared with analyst expectations of $12.7 billion.

Amazon Stock: Technical Ratings

Further, Amazon shares have gained 18% this year and 69% in the past 12 months.

Coming into the report, Amazon stock had an IBD Composite Rating of 94 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

Amazon’s Relative Strength Rating was 92 out of a best-possible 99.

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