Amazon.com's latest earnings report showed that it continues to be the leader in the cloud-computing market, but it faces a growing threat from Microsoft and Alphabet's Google. Analysts emphasize that Amazon's artificial intelligence (AI) strategy is vital for maintaining its leadership position.
Despite delivering a 12% annual growth in its cloud-computing business, Amazon Web Services (AWS), the company initially disappointed stockholders with its third-quarter report. However, the stock rebounded after CEO Andy Jassy revealed that AWS had secured significant contracts late in the quarter.
To match Microsoft's impressive 28% growth in its own cloud business, Amazon needs to secure more contracts driven by its access to AI tools and hardware. Seaport Research analyst Aaron Kessler predicts that generative AI will generate billions of dollars in revenue for AWS over the next few years.
In light of this, Kessler raised his target price on Amazon's stock from $145 to $150 and maintained a Buy rating.
On Friday, Amazon shares surged by 5.4% in premarket trading, reaching $126.07. Meanwhile, Microsoft saw a 1.2% increase, and Google-parent Alphabet rose by 0.8%.
Although Amazon hasn't generated as much buzz around AI this year as Microsoft or Google, the tide seems to be turning. The company has invested up to $4 billion in AI start-up Anthropic, suggesting its renewed focus in this area. Jassy highlighted Amazon's advantages in the AI battle, including its clear leadership in cloud infrastructure, its ability to store clients' data, and its provision of custom chips for training large language models.
RBC Capital Markets analyst Brad Erickson praised Amazon for its aggressive stance on generative AI, stating that the company's growth and revenue outperform its competitors. Erickson maintained a $180 target price and an Outperform rating on Amazon's stock.
In conclusion, while Amazon still holds the crown in the cloud-computing market, it faces mounting competition from Microsoft and Google. The company's commitment to bolstering its AI capabilities will be instrumental in defending its position and seizing future opportunities.