Amazon stock is rising after rising third-quarter earnings

Shares of Amazon (AMZN) closed 6% higher on Friday after the company reported higher third-quarter revenue and earnings per share than Wall Street expected.

The company said Thursday that it expects fourth-quarter revenue in the range of $181.5 billion to $188.5 billion. Analysts had forecast revenue of $186.36 billion for the quarter. Meanwhile, Amazon said fourth-quarter operating profit is expected to be between $16 billion and $20 billion. Wall Street had forecast $17.49 billion.

In the third quarter, Amazon posted earnings per share of $1.43 on revenue of $158.9 billion. Analysts had expected earnings per share of $1.16 on revenue of $157.29 billion. Meanwhile, Amazon's closely followed Amazon Web Services division posted revenue of $27.45 billion in the quarter, roughly in line with Wall Street forecasts.

“You have the ingredients you needed for the stock to rise,” Arun Sundaram, senior equity research analyst at CFRA, told Yahoo Finance.

Sundaram pointed to Amazon's operating margin of 11%, above Wall Street's expectations of 9.34%, as another key driver of the stock's after-hours rise. Arun noted that Amazon is able to use other levers in its business, such as its e-commerce division or advertising, to increase margins while investing in AI.

Amazon's earnings follow some volatile trading sessions for Big Tech companies and other earnings reports as spending on artificial intelligence and how each company handles it took center stage. Alphabet (GOOGL, GOOG) beat expectations on revenue and profit and posted impressive gains in its cloud and advertising segments, businesses that compete with Amazon.

Meanwhile, Microsoft and Meta (META) had a harder time. Shares of both tech giants fell after reporting their results on Thursday as investors were spooked by a surge in AI spending, although both companies beat expectations after the bell on Wednesday.

In particular, Meta said that the company expects significant investment growth in 2025. On Thursday evening, Amazon said it expects to spend $75 billion in capital expenditures in 2024, and CEO Andy Jassy said the company expects to spend “more than that” in 2025. In 2023, Amazon's capital expenditure was $48.4 billion. Jassy said the increased spending was due to generative AI, which he described as “perhaps a once-in-a-lifetime opportunity.”

“The faster we increase demand, the faster we need to invest capital in data centers and network equipment and hardware,” Jassy said on the earnings call as he explained why spending continues to rise. “And of course with AI hardware, the accelerators or chips are more expensive than the CPU hardware. That’s why we invest in all of this up front before we can monetize it with customers who use the resources.”

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