Amazon Q3 Earnings: AI a "Once in a Lifetime" Opportunity

Profit Growing Faster than Revenue, Units Growing Faster Than Sales, AWS on Fire

A few tidbits:

* Unit volume growing 12% y/y

* Revenue grew 11% y/y

* Online store sales grew 8% y/y - one of the higher numbers in the last two years.

* NA operating margin up 100bps y/y

From the beginning of 2024, Walmart actually called it first. Their plan was to grow profits faster than sales. In an economy you aren't quite sure of, it's a formula where "you control what you can control", and no one was sure they would be able to control the consumer. So where is the consumer now?

Amazon says the consumer is still looking for deals and is very price-conscious.

Beyond this, there were themes coming out of Amazon earnings:

> Amazon Dismantling the Convenience Store / Pharmacy

Amazon's largest growth drivers are everyday essentials: health, beauty, personal care, and non-persishable grocery. In short, Amazon is not only eating the convenience store (have you seen the chaos at Walmart/CVS? yes self-inflicted, but also, hello 'Zon), it's also eating the middle of the grocery store.

And these items tend to be more first-party items. Not coincidentally, 1P units gained against 3P unit share for the first time in recent memory. These are replenishables. This is also the same thing driving frequency / unit volume higher than sales volume.

Expect this trend to continue, because Amazon's logistics performance is only getting faster. In one sense, Amazon is delivering what Quick Commerce promised.

> "Once in a Lifetime" Amazon Web Services (AWS) On Fire

Some tidbits to prove the point:

* Jassy called this a once in a lifetime opportunity - think Amazon will underinvest in AI? Investors look out -- CapEx ahead.

* AWS is now a $110B run-rate business.

* AWS margins are up to 38% (just think about that).

* AI business is growing triple-digit percentages and is already a multi-billion dollar business, with demand growing faster than supply.

* They have gone back to Amazon's custom silicon manufacturer 4x already to make more. AI inference in particular is expensive and they can save people a lot vs NVIDIA.

* $75B in CAPEX this year, more next year, most of which is AWS.

Things I Think I Think:

* Is advertising getting slower because 3P unit growth is slightly decelerating (compared to 1P) at the moment? Amazon advertising business is decelerating slightly to 19% y/y growth, it's slowest growth in the last two years. Last time this happened they blamed inventory levels. No mention on the call.

* Low Cost Store still a hobby. It's unclear how they will surface this, and I wonder if it will be more of a distraction than anything. No Low Cost Store mention on the call, except: "We've always said it's easier to offer lower priced selection than to be able to afford to do so." You can say that again.

* Amazon may not be able to solve fresh grocery.