Amazon (NASDAQ: AMZN) has been overshadowed by US tech rivals like Nvidia and SpaceX lately. That changed on Friday (31 July).
Shares in the retail and cloud giant surged 15% after a stunning second-quarter update helped restore confidence in the artificial intelligence story. For weeks, investors had fretted that massive AI spending was creating a just-as-massive bubble. Amazon’s results showed that for some companies at least, the billions are already paying off.
Its AI business is now running at an annual revenue rate of more than $25bn. Demand for AI infrastructure also pushed Amazon Web Services’ (AWS) revenue up 36.7% year on year to $42.2bn, comfortably beating expectations. That’s an annualised run rate of almost $169bn. Its backlog of future customer commitments climbed to an extraordinary $496bn.
Was Friday a game-changing moment for tech?
None of this comes cheap. Amazon expects to spend around $220bn on capital investment this year, mostly on building data centres and buying AI chips. Critics have questioned whether hyperscalers could ever earn an adequate return on that spending. Amazon’s figures suggest they can.
Net income also received a huge boost from a $53.4bn pre-tax accounting gain on its early investment in AI start-up Anthropic. It’s another reminder of just how enormous the sums involved in the AI revolution have become.
July was always likely to be volatile. June’s excitement over the blockbuster SpaceX flotation pushed enthusiasm to extremes. However, we’ve been here before. US technology stocks have dominated global markets for more than a decade, yet suffered plenty of dips along the way. Investors always bought them. It’s a handy reminder not to panic and sell at the first retreat, but stick with shares through the ups and downs. The Amazon share price is up 26% over one year and 63% over five.
Markets will remain skittish. Much will also depend on what happens in the Iran war, and where the oil price and interest rates go next.
Here’s another big S&P 500 winner
Amazon isn’t the only techie on a high right now. As Ben Barringer, head of technology research at Quilter Cheviot, has pointed out: “Three out of the big four hyperscalers have extensive cloud businesses — Amazon, Alphabet and Microsoft — and all three posted stellar growth in cloud revenues in their recent results.”
On Thursday, Microsoft stock jumped 16% adding a staggering $450bn to its value. That’s the largest one-day gain in stock market history, a whisker ahead of Nvidia’s $440bn. Azure cloud revenues jumped on booming AI demand, while Microsoft handed $10.2bn to shareholders via dividends and share repurchases.
SpaceX has had a much rougher ride. At $108, its shares have slumped more than 50% from their post-IPO peak as they battle to find their real value. Brave investors might see that as a buying opportunity.
I think Amazon shares are well worth considering but I’d approach with caution in the days ahead. After such a massive one-day spike, a bit of profit-taking wouldn’t exactly be a surprise.
Should you invest £5,000 in Amazon right now?
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Harvey Jones owns shares in Nvidia.
This story originally appeared on Motley Fool
