Amazon AWS revenue jumps 39% as cloud providers race for AI dominance

Beating market expectations

Amazon's cloud-computing unit, AWS, reported a significant surge in performance during the third quarter. The company brought in $45.98 billion in revenue, which represents a 39% increase compared to the same period last year. This figure surpassed the $45.29 billion that analysts had predicted would be the result.

The growth rate marks a notable acceleration for the company. It is the fastest growth rate for AWS since the fourth quarter of 2021. This trend follows a second quarter where the unit saw growth of approximately 37%, showing a steady upward trajectory in the cloud market.

The financial health of the segment is also improving in terms of profitability. The AWS unit generated $17.77 billion in operating income during the third quarter. This figure was up 55% and exceeded the $16.97 billion consensus estimate provided by StreetAccount, as reported by CNBC.

Core infrastructure and AI

The primary drivers of this growth appear to be the fundamental building blocks of the internet. Amazon CEO Andy Jassy noted that the core revenue from compute and storage services grew at their fastest rates in several years. These services provide the basic power and space that companies need to run their digital operations.

At the same time, the company is heavily investing in hardware specifically designed for artificial intelligence. AWS announced plans to expand its portfolio of Nvidia graphics processing units, which are essential for handling heavy AI workloads. These units allow companies to train and run complex models more efficiently than standard processors.

To bolster its position, Amazon has also been active in acquisitions and partnerships. The company acquired the data analysis startup DuckLabs and signed new deals with major tech players like Meta and OpenAI. These moves suggest a strategy of integrating data tools and high-level AI capabilities directly into the AWS ecosystem.

The competitive cloud landscape

While Amazon remains the leader in cloud revenue, its primary rivals are also seeing significant momentum. Alphabet reported that its Google Cloud business, which includes infrastructure and Google Workspace subscriptions, more than doubled in the third quarter. This indicates that the entire cloud sector is benefiting from a massive wave of new demand.

Microsoft is also making gains in the space with its Azure platform. Recent reports show that Azure is now 72% the size of AWS, a notable increase from 58% just two years ago. This suggests that while AWS has a head start, the gap between the major providers is shifting as they all compete for enterprise contracts.

The competition is centered on the ability to host high-demand AI applications. All major cloud providers are currently racing to build out the physical data centers required to support these needs. This infrastructure race is the primary battleground for the next decade of cloud computing and enterprise technology.

Future growth and chip strategy

Amazon has set ambitious long-term goals for the AWS business. Jassy stated that the company believes it can grow its revenue by more than 40% in both 2027 and 2028. Based on this pace, the company aims to become a trillion-dollar revenue business within the next five to ten years.

A key part of this strategy involves diversifying how customers access Amazon's custom hardware. Currently, Amazon uses its Trainium chips for training AI models. Following a strategy similar to Google's tensor processing units, Amazon intends to make Trainium available outside of its own cloud platform starting in late 2027.

This move is a response to direct requests from customers who want to use Amazon's specialized silicon on their own infrastructure. By opening up these chips, Amazon hopes to capture a larger share of the AI hardware market. This strategy aims to balance internal cloud growth with external hardware sales to reach their trillion-dollar target.