Instant Reaction: Amazon Reports Cloud Sales Growth for Fifth Straight Quarter

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Shares of Amazon hire in the aftermarket. Let's get to
it with our team. Two members killer members, if you will,
of our Bloomberg Intelligence team. We're talking about Putnam Goyle,
She's Bloomberg Intelligence Senior analyst for e Commerce and ath Leisure.
And Anna Agrana, Bloomberg Intelligence Senior Technology analysts.
Put them.
Let me kick it off with you in terms of Amazon,
what's jumping out here for you?
Look, it looks like broadbats, Bob, broad based strength across
the board. The retail numbers were particularly good, and that
was expected because we had the prime day shift moving
in from three Q to two Q. So overall, really
nice numbers here on the retail side. Consumers came to
Amazon to shop prime day sales, and the shift to
online just continues up here, more and more apparent as
we moved through a tough consumer spending cycle.
What's this third quarter net sales miss one ninety seven
to two hundred and two billion. The estimus were two
hundred and four billion dollars poon.
Hm.
I think part of it is the prime day shift,
right when you think about.
What analysts knew about that, so they should have, but
we don't know.
How much, right, we don't know how much in dollar
volume has moved into Q If you look at the
beat that we saw, analysts were expecting revenues to be up,
but they came and even higher than that. Right, thirteen
point seven percent online revenues was the expectation and they
came in a fifteen percent, So a couple of billion
dollars there could be part of the movement that we're
seeing here in the guidance as well.
All right, Anderrok, com on in on here. Let's talk
about AWS. What doing pretty well, to say the.
Least, actually much much better than what I would have
expected them in going from to thirty seven in constant
currency is phenomenal just because the size of this business
is so large. I mean, it's so much bigger than
aud Equal and much bigger than Google. But this is
a very big beat, frankly, and the bigger thing, the
biggest surprise for me was the margins. I would have
expected margins to go down with all these investments that
actually went up. So you know, kudos to the AWS team,
and we look to hear more about guidance for a
next quarter, and you know, how much longer can these
margins hold up?
Honor Rock.
The AI and chips run rate, the ease eclipsed run
rates of over twenty five billion dollars can textualize that
for US, as Romaine said, a division of a division
with twenty five billion dollar run rates.
Yeah, I mean, to be honest, I don't really care
that much about the AI net number. The number of
the chips is the one that I find it more
exciting because here's the thing. All these big companies that
are spending all this capex, A large portion of that
capex is going to buy GPUs and video GPUs. If
Amazon can go and figure out their workloads onto their
own chips, it saves them massive amount of money and
helps them recognize the big backlock that they have without
having to spend you know, given video that cashital I
think that's one of the biggest differentiators between Google, Amazon,
and Microsoft is you know, the first to have their
own chips that people are embracing at a fast pace.
Meanwhile, that's not the case with Microsoft.
Yeah, I think it's just fascinating. As I said, I
don't always think about Amazon as a chip company, but
you got to remember that they are doing this, and
increasingly these big tech guys are doing it. Put them
Come on back in here. Anything here, I know we're
still getting information. There's still stuff we're going to get
on the analysts called anything though, that you find is
maybe something that's worth digging a little bit deeper into
and asking about.
I think the advertising business saw a nice pickup, right,
twenty six percent growth rates this quarter is a is
a step up from the close to twenty percent that
they've been recording for the past few quarters. Was that
also led by the prime day shift? Given such a
big event moved into the second quarter to advertising dollars
shift too, and we will we see that slowed down
a little in the next quarter. So I'm looking to
better understand how this prime day shift affected and helped
to queue across the board and what it really does
to three Q. They've never quantified it, so we're hoping
to get some color.
Well, how big is prime like how big is Prime Day?
Because I know we know from a metrics perspective, but
prime day kind of started a few years ago as
this offshoot of what was it Ali Baba doing Singles Day?
Is that what sort of inspired it years ago?
That could have inspired it? But you know Prime Day
was a once a year phenomenal.
Yeah, I know, it's like holiday right a week.
It's now twice a year, right, So it's really just
a move to pull shoppers to spend earlier. So if
you think about the timing of Prime Day, right this time,
they moved it into June, usually in July, so really
capturing spend for back to school, for these peak holiday
moments where consumers are looking to stretch their dollars. They're
they're essentially taking the dollars up front and trying to
get the consumers to spend it with them versus elsewhere.
Does that happen? Yes and no, because around Prime Day,
it's not just Amazon that's striking the deals. It's also Walmart,
it's also Target, it's also Best Buy. Everyone is having
their own version of deals around this day.
Anything to get us to buy. I know how that works. Hey,
just to remind you everybody, we're talking with Punamgoyle, Bloomberg Intelligence,
senior analysts for e Commerce and at Leisure Aragrana Bloomberg
Intelligence senior technology analyst joining us. If you have a question,
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Hey, I want to just look at shares of roadblocks
real quick. The gaming company down about eleven percent in
the after hours, just taking a look at what exactly
is happening. Second quarter daily active users came in below
estimates one hundred and twenty three million. The SMOs for
one hundred and twenty eight point seven million dollar million users.
That was really that what missed the average analyst estimate,
and that is what has has investors concern. Bookings came
in a little shy, hours, engaged came in shy. Revenue
did come in higher than expected, though a loss per
share at twenty six cents. The estimos for a lost
percent at thirty four cents lost per share, rather shares
down eleven and a half percent from the after hours.
All right, so getting hammered going in the other direction,
shares of Amazon continuing to rally. Our spencer soper out
with his story. Amazon reported cloud computing revenue that beat
analyst estimates, with booming demand for artificial intelligence services accelerating
sales for the fifth straight quarter, revenue jump thirty seven
percent to forty two point two billion at Amazon Web Services,
which generates about a fifth of the company's revenue and
most of its operating profit. It was the fastest pace
of growth since the fourth quarter of twenty twenty one. Analyst,
on average forecast sales of forty point six billion, according
to data compiled by Bloomberg. You know, Ana Rag, you
have Amazon against the other hyperscalers. What is it that's unique?
I mean, you talk a little bit about the chips,
and that certainly kind of keeps a lid on some
of their costs and their access situation among the chip
demands that we've seen out there. But what is the
special sauce of Amazon?
So the first and foremost, it is the largest public
cloud provider, It has a much longer history of working
with enterprises. So remember when we talk about AI adoption,
you think about chat GPT app, it's primarily hosted on
Microsoft as here.
That's a consumer app.
But now you think about AWS and enterprise AI adoption,
that's where a lot of large companies around the world
would be building their application or they would be infusing
AI into their older application. So that's a big difference,
is the enterprise presence as well as that. And you know,
for the Microsoft is on the consumer side. Microsoft does both,
but for Amazon that's primarily the bread and butter. The
other thing is they're also the key or the preferred
cloud provider for anthropic and we have seen a massive
boost in and thropics use for coding agents, and I
think that's also helping AWS in that case. And then
if you think you know the future of AI is
enterprise adoption, you know Amazon has a lot of data,
it has a lot of services, so it's right in
the middle of this entire I would say air diffusion
within companies.
I want to bring in ed La look to the conversation.
He's the host of Bloomberg Tech out there in San Francisco,
and what sticks out to you Amazon's numbers up the
stock up eight point nine percent in the after hour.
Yeah, what's sticking mean you.
And Anna Rag will forgive me because I missed the
first part of your conversation.
I was on the phone with the CFO.
But I mean, this is a beat on every metric
where AWS absolutely matters most. You know, thirty seven percent
growth against street expectation of thirty one percent. You know,
it's it's a pretty straightforward set of numbers where you
know they will be peppered with questions on the call
for the same magic formula that we discussed in the
last few afternoons, capital expenditure, direction of travel, and other
points of tangible evidence that the AI from Amazon is
gaining traction in its different guises.
What did you hear from the c CFO.
That, as I suppoke to the CFO of a different company,
describe your kind of things?
Which CFO? Which CFO were you talking to?
Sorry, I was talking to the I was talking to
the Rivian's okay, we're going to get to get that data. Okay, great,
But yeah, like again, you know, an Ana Rag like,
I'm such a massive Anaag fan, and so if I
say something and he's like that's dumb. Let him say
it's dumb. But you know, operating income also like a
huge beat. And you know, if the concern of the
market for the hyperscalers is that they want to see
free cash flow and profit and a commitment to spend
and continue top line growth, they kind of got all
of that. There's not a lot left to complain about.
Is there an rag you want to come in now
on that?
No, I absolutely agree with that. In fact, that's what
I was trying to figure out. Can I find any
mistakes over here? But we don't.
And in fact, which is why I said, you know, when.
You think of enterprise adoption and AI, you really cannot
think of anybody better than AWS because of given that
how much of world applications the house already you know,
within their ecosystem. So the big question now is how
much they have to spend for the next twelve months
to get this kind of rate going. We saw the
AWUS growth rate jump to thirty seven percent. You know,
next quarter, is it going to be faster than that
or do we see some moderation in that? So now
we are really getting into, to be honest, fifty basis
points here or one hundred basis points here, it's a
you're nitpicking at this point.
Frankly, Hey, we're getting some questions from viewers and listeners
around the world.
Just a reminder.
Subscribers to Bloomberg dot com and terminal subscribers can ask
questions Bloomberg dot com slash ask radio. I want to
throw this one. This is from Connor in Auckland, New Zealand.
Thanks for stand up late, I guess early in the
morning for us, Connor, Microsoft and Amazon are making good
progress in enterprise AI. How sticky are their product offerings?
Will there be big swings in market share going forward?
On a rock?
I think this is a good question for you.
So the way we think about it is the pie
is growing at such a fast space.
They will all make money. I'm fairly confident about it.
But the question is what kind of money they will
be making. Are they making money renting GPUs and training
models or are you building AI applications on top of it.
We like the second kind of business better because in
the long run, it's very difficult to take it off.
So let's say go back, you know, twenty years or
fifteen years. If lift or Uber started their application on AWS.
That's a cloud native application. As the application is growing,
AWS makes more money. If you are developing a brand
new AI application today, if you pick one of these
three or four cloud platforms, as you as those apps
get bigger, you're going to make money. So it's a
perpetual revenue email. It's very difficult to take that out
and move it somewhere else. But if you're only training models,
that's a very different revenue stream.
Yeah.
It's interesting too because I was just looking at Spencer Soaper,
the story that he's got on the Bloomberg Terminal or
Bloomberg Spencer Soaper. He says the company lacks a hit
consumer AI product on par with open ais chatchypt and
Anthropics Claude, but has ink Deals, committing both AI labs
to spend at least one hundred billion dollars in services
from the Amazon Web Services cloud unit in the coming years.
I mean ANTAOG.
That's a big deal.
Yeah.
So one of the things that mikel Microsoft said yesterday
was the sequential increase in commercial real performance obligations or
the backlock that they had. I think it was about
forty five billion. All of that was from non frontier
model companies, which is that is not anthropic, that is
not opening eye because remember, what is the biggest fear
right now in the market is what if open EI
is not able to take care of the commitments or
entropic and so forth. But what they're saying is the
business now they're coming in in their backlocker and they're
bookings is from non frontier models. And that's really I
think one of the most important questions that we want
to ask the company today is if they talk about
cloud commitments, where are those cloud commitments coming in.
Is it the three or four companies or is it
more diversified.
Right exactly in terms of exposure to maybe just a
few big customers put them on I want to bring
you back. We spent We talked so much about AWS
and I know we do that with you as well.
It's so important in terms of what really makes money
for Amazon. But you think about I mean, they sell
a lot of stuff, so many of us relate to
Amazon as a retailer. How do they think about increasingly
using AI to kind of juice the numbers and maybe
improve the profitability on the retail side of things.
Yeah, AI has been a big push on the retail side,
and actually I think Amazon does the best better than anyone.
When they introduced Alexa for Shopping, for example, Alexa plus,
it's pretty clever. You know, you go to the search bar,
you can compare pricing. You can say I'm looking for
this item and when was it priced, and if it
drops to that price, buy it for me. I mean,
just that simple, and it'll show about your door. So
I do think that they're gaining traction there. In fact
and the release, I believe they said that interactions and
active users doubled over second quarter just with AI adoption
and Alexa for Shopping, So they're making momentum here. We
do think that the investments that they make in Alexa
for Shopping and AI will continue to not only help
them with customer service and conversion online, but also improve
margins on the retail side, which are slimmed to none.
As you know, I find that data so amazing. Puma,
I didn't know you were with us. It's so good
to see you. By the way, every morning when I
wake up for Bloomberg surveillance, it's because my Eco device works,
I ask Alexa to set an alarm and it's very
reliable for that, But for ages, I've been thinking, what
am I going to use this for? The data you're
pointing to is amazing though, Alexa for shopping right if
their shop is on prime, use Alexa more than forty
percent more per order if they involve the A in
the transaction. I find that amazing. But it doesn't move
the needle on the financials right for Amazon at the stage.
It doesn't move the need because you have to think
about how big Amazon is. Right, We're approaching a trillion
dollars in GMB this year based on our estimates, so
that's a sizeable number. So when we see these growth
rates with the online business up fifteen percent, it's a
big number to move. That said, I do think it
does move the needle on conversion. I do think the
aluxafer shopping is helping it's prime customers more notably really
engage and purchase things even quicker because now you're just
talking to someone, you're talking to this agent, and you're
setting expectations on what you want and things will just
show up to your door. So now you don't need
to go back and keep going back to see, okay,
did the price drop? Is this the best price is
this what I need. Do I need something else? It's
doing the work for you, So I do think over
time that will help boost sales and really help Amazon
continue to maintain its lead in the online world.
I want to throw one to add and back to
the technology side of things, and I want to talk
a little bit about the company's chips and business. We
got some data about annual revenue run rates on a
rug said he's not as interested in the AI side
of it.
He's more interested in the chip side of it. But
me too.
You know, they've got the what is it the trainum
Is that what they're talking about here.
Well, it's multifaceted. But the chips business has revenue run
rate twenty five billion dollars, as does the AI business.
It's a run rate figure, but it is amazing how
quickly they've kind of turned it around from the in
house R and D to like they got a lot
of questions from what's the point of trainium, like who's
using it? They had a lot of early success with
saying Athropic will use Trainium, but and throp it quickly
followed up with some big TPU deals twenty five billion dollars.
You know, for context, AMD did thirty five billion dollars
of revenue all told in its last fiscal year, and
it's likely to do fifty billion dollars this year. But
it's oh, they're moving pretty quickly on it, you know,
across those It's not them literally a bag of chips
here you go. You know, it's still then renting capacity
specifically to their own silicon, but to third party customers.
And like, yeah, you know, if if Google gets all
the credit for TPU, then should Amazon get some credit
for those trainium chips too?
Some would say, yes, we were talking about anarak. Come
on back, we were talking about chips with you and
Amazon earlier.
Yeah, I think that's exactly what you know Ed is
talking about here, because remember it's the capic side of
it also, that's important. First of all, if customers are
embracing Cranium along with Amazon Cloud, I mean, it's really
good for them because guess what, they get to keep
a lot of that gross margin that they don't have
to pay in video for those ships.
So I think sooner or later, the game.
The big game in this case is going to be
who has the lowest you know cost per token within
the all the hyperskailled cloud providers, and that's where Google
and amaz z On may have a lego verted our
Microsoft
M mm hmm