Amazon.com Inc (NASDAQ:AMZN) put out its Q3 results last night highlighted by strong performance from Amazon Web Services.
Analysts at Jefferies cited sustained revenue momentum for AWS driven by growing demand in emerging technologies.
The firm noted that the gap between reported AWS growth and backlog expanded again to 4% in Q3.
AWS backlog grew 23% year-over-year, which Jefferies characterized as "an acceleration from 19% growth in Q2," reflecting strong demand for both generative and non-generative AI workloads.
The analysts also pointed out that capitalized content costs rose 10% year-over-year to $19.8 billion, with digital content expenses increasing by 9% year-over-year.
Elsewhere, analysts at UBS highlighted a long-term growth trend driven by the shift from on-premise infrastructure (local servers and data centers) to cloud-based solutions.
This transition presents significant opportunities for AWS, UBS believes, especially since its market penetration is still low, indicating substantial room for growth.
However, AWS reported a year-over-year growth rate of 19%, which is below the expectations of many investors who anticipated growth rates of 20% to 21%. This shortfall could signal that AWS is facing stronger competition or market saturation, which might raise concerns about its ability to maintain robust growth moving forward.
UBS noted the potential for AWS's profit margins to decrease in the near to medium term as AWS is expected to incur higher capital expenditures investing in infrastructure and technology to support its growth.
The associated increase in depreciation and amortization (D&A) expenses could lead to lower profit margins, especially if the revenue growth does not keep pace with these rising costs, UBS warned.
Shares of Amazon were up 6% on Friday.