00:00Amazon surging after raising its AI spending plans and accelerating AWS growth.
00:05TD Cowan's John Blackledge boosted his price target, saying the results show AI investments are paying off, and he joins
00:12us now.
00:12John, great to see you. I mean, the fastest growth for AWS since 2021. How did Amazon achieve it?
00:20Yeah, fifth quarter in a row, the AWS revenue growth accelerated, and they called out massive AI demand,
00:27and so growth in AI revenue. Their AI business exited the quarter at like a $25 billion run rate,
00:34and they're also saying that the non-AI revenue growth is very strong.
00:39And I would also call out that aside from the revenue growth, which was great, margins expanded meaningfully and crushed
00:48consensus estimates,
00:49and they've been persistently high for now several quarters as revenue has accelerated, so that was really also great to
00:57see.
00:57John, what did we learn about the future here? Management talking about a trillion-dollar revenue business over time.
01:02We know well the success of AWS for Amazon in not just recent quarters, recent years.
01:08What are executives thinking as they look at the inroads it seems like Meta and other companies have been kind
01:12of trying to get into this space?
01:14Yeah, no, I think CEO Jassy was incredibly bullish and communicated so effectively last night, and you're right.
01:21He called out potentially AWS $1 trillion in revenue.
01:24If you go back to April to his shareholder letter, he was talking about AWS potentially doing $600 billion in
01:30revenue.
01:31So if we think about that over, what, four months, you have that type of move.
01:35He didn't put a year on it, but it was incredible.
01:37And the other things that he was talking about were, you know, AWS is going to be capacity constrained this
01:44year, 2026 and 2027, and that's on the AI demand.
01:48And then he said the AI demand in 2028, right from what they're seeing right now, is striking, which, you
01:55know, we're a little over halfway through 2026, and he's talking about the demand in 2028.
01:59So it's just incredible, and I would also add that he reiterated that AWS's capacity will double by the end
02:07of 2027.
02:09So at the same time that their capacity is doubling, you know, the demand is so strong that they're going
02:16to be constrained through 2027.
02:18So all in, it's just off-the-charts demand, and we ended up materially raising our AWS revenue and operating
02:24income forecasts the next five years.
02:25So ultimately, you had Andy Jassy communicating a very clear and strong narrative to this market.
02:31There had been this idea that part of the reason that Meta struggled after they reported their earnings is we
02:36didn't get that same clear narrative from Mark Zuckerberg.
02:39John, is there a contrast to be drawn between these two CEOs, not even just in the business, but their
02:44communication style to this market and what they're hoping to achieve?
02:49Yeah, exactly.
02:50And I've covered both companies for a long time, and CEO Zuckerberg is a great communicator, historically has been a
02:57great communicator, historically inspires confidence within the investment community.
03:01But I feel like they've kind of missed the mark three out of the last four quarters.
03:05What we were looking for from Meta was some clarity on CapEx trajectory, clarity on monetizing excess AI compute.
03:14And then just more broadly, like, they're investing a lot in this AI moment.
03:19What are the products and services and potential revenue streams out of that?
03:22And, you know, we didn't get as much as we would like, and it was disappointing, you know, kind of
03:27the stock disappointed after the reporting.
03:31But, you know, they do have an opportunity, right?
03:33CEO Zuckerberg was like, yo, we think we can sell our capacity at a significant premium to what we paid
03:41for it.
03:42And from a CapEx perspective, they were like, oh, we're going to maximize our capacity the next couple of years.
03:49So I feel like in the coming months, we can hear more, and maybe they will cut some deals on
03:54MetaCompute.
03:56But to your point, yeah, CEO Jassy was spot on this quarter with his messaging.
04:02John, let me ask you about prioritization.
04:04And Ed Ludlow just a moment ago talking about how there was something in this report for everybody, even those
04:08of us who remember Amazon as a bookseller way back.
04:10It still has a very sizable, of course, retail component.
04:13What did you learn from Jassy, from the company, just about the way that they're looking at the conglomerate as
04:18a whole, the whole business,
04:18and how much they're prioritizing one part of it versus the others?
04:22It feels like everything's firing off, firing on all cylinders, to be honest with you.
04:28We spend time on AWS.
04:30I thought they were incredibly bullish on the e-commerce business.
04:32I mean, they're at record delivery speeds, and I think they feel like there's meaningful runway for further, you know,
04:42kind of improving delivery speeds.
04:44And in e-commerce, when you increase the delivery speed, you massively increase the conversion rate.
04:49So I thought that was really bullish for the e-commerce business in the coming years.
04:54Advertising growth accelerated.
04:56I mean, this company is firing on all cylinders, and it's a great question in terms of prioritization.
05:00And I think they are prioritizing their biggest bets, which are what we're talking about, AWS, e-commerce, advertising, among
05:06other areas.
05:07I'm talking about India, Mexico, Australia.
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