AI technology stocks saw volatility last summer and during the third-quarter earnings season after several years of strong gains.

After strong gains in 2023 and the first half of 2024, concerns about two issues emerged last summer. First, cloud computing giants have begun to dramatically increase capital spending on data centers. This situation caused investors to ask the following question: Will all this spending yield a return? This first concern led to a second concern; If these investments do not pay off in a short time, has this turned artificial intelligence into an excitement-driven bubble ready to burst?

Fortunately, the world’s largest cloud platform, Amazon (AMZN 6.19%) We reported strong earnings last Thursday; The details of which should give a great deal of confidence to AI investors everywhere, especially those concerned about the AI ​​chip leader’s near-term outlook. Nvidia (NVDA 1.99%).

Amazon Web Services has seen eye-opening growth

Some investors had begun to doubt the world’s largest Amazon Web Services (AWS). cloud computing infrastructure provider After a growth slowdown in 2022 and 2023, artificial intelligence in the world over the past few years seems to be reheating AWS’s growth prospects.

In the third quarter, AWS revenue increased 19%, an acceleration compared to the previous year’s 12% growth. law of large numbers. Not only was revenue growth strong, cloud computing operating margins also increased to 38.1% from 30.3% a year ago; AWS’s operating income increased by an even more impressive 50%. Although AWS’s operating margins have jumped significantly, the overall trend is quite positive. On a trailing 12-month basis, AWS’s operating margin increased almost 10 percentage points to 35.3%, from 25.8% a year ago; This is a huge leap.

This means that AI will not only drive strong growth for Amazon, but also snowy growth. This last part is really important because almost all major cloud companies are. Significantly increases investments in artificial intelligence data centers. Notably, Amazon’s capital spending on property, facilities and equipment rose 81% last quarter to $21.2 billion. So it was a relief to see all this spending paying off in terms of growth and margin in the short term.

“Three times faster than the cloud at this stage”

One of the most illuminating quotes from last Thursday’s speech conference call with analysts Amazon CEO Andy Jassy was putting a very positive spin on the AI-specific part of AWS. He noted: “AWS’s AI business is a multibillion-dollar revenue generation business that continues to grow at triple-digit percentages year over year and is growing more than three times faster at this stage of its evolution as AWS itself grows — and AWS’ “We felt like it was growing pretty fast.”

Image source: Getty Images.

This quote certainly seems to suggest that the AI ​​revolution is not a floating balloon waiting to burst overnight. After all, we’re only two years into the AI ​​revolution, because ChatGPT It was first introduced in November 2022.

For reference, the original AWS cloud computing platform was first introduced in 2006, and it’s pretty safe to say that if someone had invested in Amazon in 2008, two years after AWS launched, it would have been quite successful indeed.

Great for Nvidia: “The more demand we can meet”

As if this news wasn’t good enough for Amazon and AI stocks, Jassy also noted that Amazon’s growth would have been even higher if it weren’t for capacity constraints:

I believe we have more demand today that we could meet if we had more capacity. I think almost everyone today has less capacity than they demand. … In fact, I believe the growth rate there has a chance to improve over time as our capacity increases.

You heard right. Jassy believes Amazon’s AI business could accelerate further; The only current constraint today is supply shortage.

This bodes a lot of good things Nvidia (NVDA 1.99%) and upcoming earnings release. Shares of Nvidia sold off following its latest earnings report, with guidance that was strong but slightly below “whisper” expectations on Wall Street. But we also know that this is likely due to a quarter delay in upcoming Blackwell chips.

The delay with the production mask has been fixed and Nvidia has now moved into production for Blackwell. Earlier this month, CEO Jensen Huang predicted that Blackwell would generate “billions in revenue” in the fourth quarter, while some analysts predict Blackwell will generate $10 billion or more in revenue in the 4th quarter.

So while Amazon and basically all cloud providers say their capacity is constrained by the demand they have, Nvidia’s guidance on its upcoming November 21 earnings report should be pretty strong indeed.