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Wednesday 01 May 2024 5:26 am
Amazon’s stock surges on strong earnings, fuelled by AI-driven cloud growth
Amazon.com defied Wall Street’s projections in its quarterly report, riding high on the wave of interest in artificial intelligence that fuelled growth in its cloud-computing division. This stellar performance catapulted the retail giant’s shares by up to 5 per cent in after-hours trading.
The company’s net sales surged 13 per cent year-over-year to $143.3 billion, surpassing analyst forecasts. Net income followed suit, more than tripling to $10.4 billion in the first quarter, with adjusted earnings per share outpacing consensus estimates.
“We reiterate our BUY rating and $235 price target on Amazon following a 1Q24 quarter that was characterised by strong results on both the top and bottom-line, driven by strong performance on both Retail and the AWS side of the business,” noted Gil Luria, MD at D.A. Davidson & Co.
“AWS was highlighted by notable reacceleration that included growth in both generative AI and non-generative AI workloads, as customers shift their focus from optimizations to adding new cloud workloads. Additionally, 1Q24 marked yet another quarter of margin expansion for Amazon, as the company has notably improved its retail profitability over the past several quarters.”
Yet, despite these impressive numbers, Amazon’s revenue outlook for the upcoming quarter fell short of analyst expectations. Forecasting revenue between $144.0 billion to $149.0 billion, the company’s projection dipped below the average forecast of $150.07 billion.
In addition to its core business strengths, advertising emerged as a significant revenue driver for Amazon, marking a 24 per cent increase from the previous year. Its advertising arm outpaced both retail and cloud computing divisions, solidifying its position in the online advertising arena.
This resurgence in advertising parallels trends seen in other tech giants like Meta, Snap, and Alphabet, all of which reported robust revenue growth driven by their advertising segments.
Despite Amazon’s financial prowess, it stands apart from its peers by not implementing a quarterly dividend, despite its swelling cash reserves. Unlike Meta and Alphabet, which recently announced dividend payouts and substantial stock buyback programs, Amazon has yet to follow suit.
Since its inclusion in the Dow Jones Industrial Average earlier this year, Amazon’s stock has surged by 20 per cent, signalling investor confidence in the company’s ongoing growth trajectory and innovative initiatives.
As the earnings season kicks into high gear, the overnight release of earnings reports reveals a mixed bag of results for various companies.
On the flip side, Starbucks encountered a rough patch in its latest quarter, primarily due to dwindling sales in China, its key growth market. This led to a significant 10 per cent plunge in the company’s shares during after-hours trading.
Globally, comparable store sales fell by 4 per cent compared to the previous year, with China witnessing an even steeper 11 per cent decline as customers tightened their purse strings.
Elsewhere, chip designer AMD issued a cautious forecast for the ongoing quarter, aligning its revenue projection between $5.4 billion and $6 billion with consensus estimates at the midpoint.
Despite slightly surpassing expectations in the previous quarter, the company’s stock took a hit of nearly 7 per cent, dropping to $147.43 in after-hours trading.
“We aren’t sure why the stock was down 8 per cent after hours, as nearly everyone that we talked to expected exactly what we heard, which was MI300 from $3.5 to $4. bn. Those expectations coming down to earth increases our enthusiasm for the opportunity. At $140, the focus is on the business in totality, not just on an unrealistic AI buyside number based on supply chain volumes that were never likely to fully convert to revenue,” noted Joseph Moore, Equity Analyst at Morgan Stanley.
“Our target comes down slightly, as we maintain our target of 42x MW estimates for CY25. That brings the target down to $176 from $177.”
Conversely, Super Micro Computer, specializing in server manufacturing, revised its sales forecast upward for the full year, signalling a surge in demand for AI chips.
Teaming up closely with Nvidia, the company now anticipates sales between $14.7 billion and $15.1 billion for the fiscal year ending in June, surpassing analysts’ projections of $14.6 billion.
In the latest quarter, Super Micro witnessed a remarkable 200 per cent revenue increase compared to the same period last year, reaching $3.85 billion, albeit slightly below consensus estimates.
Nevertheless, earnings per share outpaced expectations, rising by 15 per cent to $6.65 per share. Super Micro’s stock, which has seen a remarkable threefold increase since the start of the year, experienced a sharp downturn of over 10 per cent, dropping to $772 in post-market trading.
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