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Roula Khalaf, editor of the FT, picks her favorite stories on this weekly newsletter.
Based on tech corporations' profits up to now this yr, selling the infrastructure needed to construct artificial intelligence services stays much more lucrative than selling the AI services themselves. The cloud computing divisions of Alphabet and Microsoft outperformed the outcomes of other business areas. Amazon achieves a hat trick.
Amazon Web Services, the world's largest cloud computing company, now has an annual operating rate of $100 billion. Last quarter, it accounted for 17 percent of total revenue but greater than 61 percent of total operating income. This performance increased the corporate's overall profits.
During the pandemic, Amazon's massive expansion of warehouses, delivery infrastructure, and workforce led to a big increase in operating costs concurrently revenue growth slowed. Free money flow was negative in 2021 and 2022. In response, the corporate increased its debt and tightened costs. These steps at the moment are paying off. During the quarter, the Seattle-based e-commerce and cloud company's operating income and net income tripled. Free money flow for the last 12 months exceeded $50 billion.
The unanswered query is whether or not Amazon is on the verge of one other big spending plan. It says it plans to pay down debt and increase capital investment this yr. But in a call with analysts, Chief Executive Andy Jassy was careful to not dwell on questions on capital investment intensity and the long-term impact on profits. He can have been afraid of replicating the negative stock price response that Meta's spending plans experienced last week.
Investments will increase this yr. Amazon is putting extra money into data centers. However, it’s unclear how much the corporate plans to spend by itself AI tools. It has positioned itself as a platform for multiple AI models, but in addition offers its own generative AI services to enterprise customers. It has expanded access to Q, a chatbot that acts as an AWS assistant. At $20 per user per thirty days, that is cheaper than Microsoft's Copilot or Google's Duet AI. But Amazon gave little indication of future revenue streams.
The second open query is how long it would take for Amazon to hitch Meta, Alphabet, Microsoft, Nvidia and Apple in paying a dividend. These corporations use the payments to prove they’ve shareholders' short-term interests at heart, at the same time as they speed up long-term spending plans. At Amazon, nonetheless, the revival of free money flow continues to be fresh. Dividend payments is probably not planned for 2024.
