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Amazon’s AI Investment Pays Off with Record Profits

Daniel Kim Views  

Amazon’s first-quarter results exceeded market expectations.

Amazon’s first quarter revenues in 2024 amounted to $143.3 billion, a 12.5% increase from the previous year, surpassing the consensus by 0.5%. Operating profit soared 220.6% to $15.3 billion, beating the consensus by 35.9%. Earnings Per Share (EPS) exceeded expectations by 16.4% at $0.98.

The rise in profitability of AWS and e-commerce is said to have driven the surprise in operating profit. The operating profit margin for the first quarter was a record 10.7% quarterly. The AWS operating profit margin rose to 37.6% due to increased sales related to AI workloads and the effects of changing server depreciation years.

“The growth of AI-based AWS will continue,” said Seo Young Jae, a researcher at Daishin Securities. However, due to rising oil prices, e-commerce is expected to slow down in terms of performance momentum.

AWS’s growth rate recorded a 17.2% increase compared to the previous year. The demand for AI model training is said to have positively affected the rebound in growth rate.

“This is in contrast to the trend where most of the growth of Microsoft Corporation’s cloud comes from inference,” Seo analyzed, “This is presumably the result of Anthropic, in which Amazon invested $4 billion, using AWS to train cloud models.”

Amazon expects the growth rate of AWS to rebound as demand for AI model inference increases. The company plans to increase its CAPEX in 2024 to enhance AI capabilities significantly.

However, the trend toward improving e-commerce profitability is likely to slow in the short term.

Seo noted, “The growth rate of e-commerce sales is expected to stabilize at a lower level. Consumers remain price-sensitive, which has led to increased consumption of cost-effective and discounted products in the first quarter following the fourth quarter.”

Amazon’s forward 12-month EV/EBITDA is at 13 times, which is less value-burdened as it is at the bottom of the past band. However, as the strength of earnings improvement is lower than in the fourth quarter, stock price momentum is expected to slow down slightly.

According to ChoiceStock, a US company analysis specialist site based on big data, Amazon.com’s stock diagnosis score (SmartScore) is 71 points. This company was ranked 526th out of 5,594 evaluated companies in the United States.

In the detailed analysis items, it scored 90 points in financial stability, 80 points in cash flow, and 70 points in future growth. It received 65 points and 50 points in business monopoly and profitability, respectively.

Daniel Kim
content@viewusglobal.com

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