Why Amazon Stock Rallied Friday Morning

Motley Fool - Fri Nov 1, 10:41AM CDT

Shares of Amazon(NASDAQ: AMZN) climbed higher on Friday, adding as much as 7.6%. As of 10:52 a.m. ET, the stock was still up 7.1%.

The catalyst that sent the e-commerce and cloud computing titan higher was bullish results that were far better than many investors expected.

CEO Andy Jassy has been working to rein in expenses at Amazon in recent years, and the fruit of those labors was front and center when the company reported its third-quarter results. Revenue of $158.9 billion climbed 11% year over year, while earnings per share (EPS) of $1.43 surged 52%.

For context, analysts' consensus estimates were calling for revenue of $157.3 billion and EPS of $1.16, so it was Amazon's jump in profitability that stole the show. Further evidence that Jassy's cost-cutting efforts were taking hold was the company's free cash flow of $47.7 billion, which soared 123%.

There were other bullish indicators. Each of Amazon's major business segments displayed positive results. North American e-commerce sales of $95.5 billion climbed 9% year over year, while international sales of $35.9 billion jumped 12%. Amazon Web Services (AWS), fueled by demand for generative AI, jumped 19% to $27.5 billion. The company's digital advertising also shined, up 19% to $27.4 billion.

Amazon's rebound over the past few quarters has been nothing short of extraordinary. As the country shakes off the last remnants of inflation and the economic recovery gains ground, consumers and businesses alike are willing to spend more. This is good news for Amazon's online retail, digital advertising, and cloud computing businesses.

However, it's the company's efforts in generative AI that seem to be having the biggest impact. During the conference call to discuss the results, Jassy talked extensively about Amazon's efforts. He said (emphasis mine), "In the last 18 months, AWS has released nearly twice as many machine learning and gen AI features as the other leading cloud providers combined." He attributes these capabilities with helping to reignite growth at AWS, which had stagnated and ceded share to rivals in recent years.

Even after the rally, Amazon stock is selling for less than 3 times next year's sales. Considering the many ways the company has to win, that represents a compelling opportunity for investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.