The e-commerce giant Amazon posted better-than-expected holiday quarter revenues, and its lucrative cloud division indicated early profits from AI-powered features. These reports caused Amazon.com shares to soar 7% on Friday.

Along with Microsoft and other major companies, the company announced plans to increase expenditure on the much-hyped technology in 2024 and began to see returns from their significant investments in AI.

“AWS (Amazon Web Services) is also seeing a strong ramp in early Gen AI revenue, though still a small contribution on a about $100 billion run-rate business. We believe AWS will gain meaningful traction in Gen AI over the coming year,” J.P. Morgan’s Doug Anmuth said.

In response to the online retail behemoth’s 14% increase in sales during the holiday quarter—which suggested robust spending even in the face of a faltering economy—at least 23 brokerages increased their price estimates on the shares.

“We believe Amazon is executing extremely well and the challenges the company faced in Retail during the pandemic and in AWS through optimizations will make the company stronger on the other side,” Anmuth said.

The company’s shares, which increased 81% in 2023, were trading at $171.01 thanks in part to a positive sales prediction.

“The real reaction is to their guidance, where other tech firms have been softening revenue ranges and earnings per share targets, Amazon has come out with a much higher-than-expected range,” said Jamie Meyers, senior analyst at Laffer Tengler Investments, which holds shares of Microsoft, Alphabet and Amazon.

The stock was valued at 40.51 times its projected earnings per share as of the most recent closing, versus 31.57 for cloud rival Microsoft and 23.75 for rival retailer Walmart.

If the increases continue, Amazon’s market capitalization is expected to increase by almost $120 billion.

Investor optimism persisted even though significant sums of money were spent this year on cloud infrastructure to facilitate the quick uptake of generative AI technologies.

“I would expect that the recent state of generative AI investments should eventually lead to strong return on investment,” said Krishna Chintalapalli, portfolio manager at shareholder Parnassus Investments.

(Adapted from ThePrint.in)