Consumer Discretionary

Amazon.com stock approaches an all-time high after the company reported Amazon Web Services growth reaccelerating and a rebound in retail spending following some deceleration last quarter, Davidson analysts Gil Luria and Alex Platt say in a research note. The company’s commentary around AWS suggests that AI features are gaining considerable traction with customers, the analysts say. Management also suggests that AWS core services growth is healthy from new workloads and cloud migration initiatives, they say. Efforts to improve profitability on both the retail side and AWS are boosting the company’s operating margins, the analysts say. Shares rise 7.3% to $200, $1.20 from their all-time high.

Amazon Web Services is now the top dog among cloud providers for AI, Davidson analysts Gil Luria and Alex Platt say in a research note. Amazon.com has taken several steps to get products and features in line with those of its hyperscaler peers in AI, especially Microsoft Azure, they say. The Amazon cloud division now has a broad set of product offerings for generative AI-specific workloads, and sees strong adoption of AI features like Amazon Q or Bedrock, the analysts say. In 3Q, AWS took in almost twice as many total dollars quarter-to-quarter as Azure, with growth accelerating to 19%, they say.

Amazon is funding considerable increases in its capital expenditures with an even larger step-up in operating profit gleaned from tight cost controls, UBS analysts say in a research note. The company is controlling its headcount to keep operating expense growth low and expand margins, they say. The company’s capex jumped 80% to about $23 billion in 3Q as Amazon Web Services invests aggressively in AI infrastructure to meet high demand, Davidson analysts say in a research note. But Amazon’s cloud unit has a lot of price efficiencies in its chips that are less expensive to implement, they say.