AWS revenue growth stabilizes with a boost from generative AI-led services

AWS posted a stable 12% revenue growth in the third quarter of 2023 buoyed by demand for generative AI-led services, despite customers trying to optimize their cloud spending.

For the last few sequential quarters, revenue growth for AWS has been on a constant decline. The 12% growth in the September quarter is a sign of stability for AWS since it also posted 12% growth in the previous sequential quarter. The growth in the quarters before showed a constant decline, sliding from a robust 33% growth in the second quarter of 2022 to a mere 16% growth in the first quarter of 2023.

AWS posted revenue of $23.06 billion in the September quarter despite the company still experiencing elevated cost optimization efforts from customers when compared to the same period last year.

However, Amazon CEO Andy Jassy said that these cost optimization efforts have continued to “attenuate as more companies transition to deploying net new workloads.” The new workloads, according to Jassy, are mostly related to AI and generative AI.

“And then you look at the very substantial gigantic new generative AI opportunity which I believe will be tens of billions of dollars of revenue for AWS over the next several years,” Jassy said during an analyst call, according to a Seeking Alpha transcript.

“On a quarter-over-quarter basis, we added more than $900 million of revenue in AWS as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud,” Brian Olsavsky, chief financial officer at AWS, said during the same call.

While announcing its earnings for the previous quarter in August, the company predicted that the revenue growth rate would stabilize post the second quarter.

Operating income back on growth trajectory

For the September quarter, AWS’ operating income rose by 29% year-on-year. For the previous sequential quarter, operating income declined by 6% year-on-year.

The increase in operating income for the September quarter was primarily driven by the company’s headcount reductions in the second quarter and continued slowness in hiring and rehiring open positions, Olsavsky said.  

“There’s been also a lot of cost control in non-people categories, things like infrastructure costs and also discretionary costs. Natural gas prices and other energy costs have come down a bit in the third quarter as well,” Olsavsky added.

AWS remains confident of its customer pipeline as it signed new deals in September, which will be reflected in the fourth-quarter earnings, Olsavsky said.

Amazon Bedrock and Amazon CodeWhisperer are two of the company’s most important generative AI-based offerings, top executives said during the call.

Competitors are catching up fast with twice the revenue growth rate as AWS tries to defend its position as the largest public cloud provider. While Google Cloud revenue managed to grow at 22% in the September quarter, Microsoft reported 29% revenue growth in Azure and other cloud services.