Amazon’s (NASDAQ: AMZN) AWS is strategically positioning Amazon to become one of the top AI winners and this claim can actually be backed up by the impressive numbers the company reported in its 2024 Q1 earnings, which had a major effect on AMZN stock, sending it around 3% higher.
However, Amazon’s AI ambitions go beyond this. Recently, the company officially launched Amazon Q, which it previewed at its 2023 AWS re:Invent conference. Amazon Q is Amazon’s generative AI-powered assistant, which is used to enhance software development and streamline access to company data.
What is Amazon Q?
Amazon’s new generative AI-powered assistant allows users to perform multiple tasks, and here are a few to name: generate codes, debug plans, and execute tasks efficiently, all with the help of AI and, of course, this contributes to boosting overall productivity. Amazon Q works by connecting to enterprise data repositories to provide information on various business aspects, making it a robust tool for developers and business users. The launch includes two specific versions, which are Amazon Q Developer and Amazon Q Business.
The first one assists developers by automating tasks such as writing and suggesting code, testing, bug fixes, which normally takes a lot of time to figure out, and finally upgrading applications, saving developers a huge amount of time. It is an important tool because it integrates with Amazon’s cloud services, which allows developers to easily manage infrastructure, troubleshoot errors, optimize operating costs, and ensure application security. Therefore, it lets developers spend less time on routine tasks and more on creating unique user experiences and faster deployment.
On the other hand, Amazon Q Business is a large-language-model-powered assistant that enhances the productivity of businesses by allowing AI to leverage internal company data. Therefore, employees will be allowed to access and interact with enterprise data repositories to answer questions, analyze trends, and generate content related to company policies, product information, business results, and so on.
Additionally, Amazon introduced Amazon Q Apps, which extends Amazon Q Business. This one allows customers to create AI-driven applications through simple natural language commands without needing any coding expertise. This capability will allow any employee to build tools that best fit their liking to improve their daily workflow. With that being said, there is no doubt that Amazon Q offerings are a huge step forward in how businesses can leverage generative artificial intelligence to enhance productivity, streamline processes, and support decision-making.
AWS: The Driving Force Behind Amazon’s Earnings
Amazon’s cloud computing business, AWS, saw a magnificent 17% growth year-on-year in this year’s Q1, which beat analysts’ expectations of 15% growth. This number assures us that AWS is on track to earn $100 billion of revenue in full year 2024. But many would say that 15% isn’t enough compared to Amazon’s cloud competitors Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG) as they reported cloud growth of 31% and 28% respectively.
However, Amazon CEO Andy Jassy has put it best when he said that It’s useful to remember that year-over-year percentages are only relevant relative to the total base from which you start, and given Amazon’s much larger infrastructure cloud computing base, at this growth rate, we see more absolute dollar growth again quarter-over-quarter in AWS than we can see elsewhere. This means that AWS still has much more room to grow, and we will see these numbers skyrocketing in the upcoming earnings.
Additionally, Amazon is spending billions of dollars to improve their AI infrastructure to deliver new AI products and their spending is surging as demand for AI now is stronger than ever. Along with that, it was not just AWS who surpassed expectations with its revenue, Amazon’s advertising unit saw a surge of 24% and this is the first report since Amazon started running ads in its Prime Video back in January, which is a move that analysts predict could generate significant revenue over time.
In fact, advertising revenue was $11.8 billion in Q1, compared to $9.5 billion a year earlier, which shows that analysts’ prediction is indeed becoming a reality. As Amazon continues to maintain growth in profitable segments like AWS and advertising, many analysts start building an upbeat perspective on the company’s prospects for the rest of 2024 and beyond.
Wall Street is Bullish on AMZN Stock
AMZN stock took a dip after earnings were reported, but that was probably thanks to investors taking profits after the stock went up around 3% thanks to the company beating analysts’ expectations. Therefore, it’s no surprise that Wall Street analysts are still bullish on AMZN stock. Bank of America analyst Justin Post had a Buy rating and raised the price target from $204 to $210. Meanwhile, Mizuho analyst James Lee had a Buy rating and raised the price target from $230 to $240, and Goldman Sachs analyst Eric Sheridan had a Buy rating and raised the price target from $220 to $225.
The Goldman Sachs analyst added that Amazon executives seem pretty confident they can keep growing the business while making more money at the same time, and that Amazon has got to keep finding ways to boost profits and cut costs with their global stores, a potential that Goldman Sachs believes to be underappreciated. With that being said, the Goldman Sachs team is still bullish on Amazon’s ability to grow both in the U.S. and overseas. They think the company’s got room to grow profits while still investing heavily in expansion, even if some investors are worried about Amazon spreading itself too thin.
Amazon represents an appealing long-term opportunity, especially as AI transforms businesses and the cloud computing market expands. The company’s competitive advantages, visionary leadership, and focus on innovation should enable Amazon to capitalize on the rise of AI. While risks always exist, Amazon has the pieces in place to maintain and build on its industry leadership in the years ahead.
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