Amazon recently released its Q3 2023 earnings report, which showed that the company had its best quarter since 2021. However, the cloud computing sector fell short of investor expectations.

According to the report, Amazon’s third-quarter sales were $143.1 billion, up 13% from the same period last year and accelerating from the 11% growth seen in the second quarter. Earnings were reported as 94 cents a share, sharply above the 58 cents anticipated by analysts, while net income tripled to $9.9 billion from $2.9 billion a year earlier. However, Amazon Web Services (AWS), the company’s cloud computing division, generated $4.88 billion in operating income for Amazon, up 38% and more than the $4.12 billion consensus that analysts had expected. Despite this, AWS came in a hair short of investor expectations.

Cloud computing has captured Wall Street’s attention this quarter after watching Big Tech invest billions into what tech companies promised would be an AI-fueled boom. The disappointing cloud performance from Alphabet clashed with sunnier tidings from Microsoft. This has left investors wanting more from the growth area.

AWS Living Up to Expectations?

The underperformance of AWS could have implications for Amazon’s valuation perspective. The cloud computing sector is a significant contributor to Amazon’s revenue and profit margins. If AWS continues to underperform, it could lead to a decline in Amazon’s valuation. However, it is important to note that Amazon’s core e-commerce division also recovered after a difficult 2022, growing by 7% compared to the same time last year.

In addition, AWS still dominates the cloud computing market, with a 40% share of the global infrastructure as a service (IaaS) revenue in 2022. AWS’s cloud is ten times bigger than its next 14 competitors combined. AWS also offers a wide range of services and features that appeal to customers across various industries and regions.

However, AWS also faces increasing competition from other cloud providers, such as Microsoft Azure, Google Cloud Platform, Alibaba Cloud, and IBM Cloud. These competitors are investing heavily in their cloud capabilities and expanding their global presence. They are also offering lower prices and more flexible contracts to attract customers. AWS’s revenue growth rate slowed down from 45% in 2021 to 29% in 2022, while its competitors grew faster.

Final Thoughts

In conclusion, while Amazon had its best quarter since 2021, its cloud computing division fell short of investor expectations. This could have implications for Amazon’s valuation perspective if AWS continues to underperform. However, AWS still remains the leader in the cloud computing market, with a large and loyal customer base and a diverse and innovative product portfolio.