Amazon. com (AMZN. O) exceeded expectations for fourth-quarter revenue on Thursday, driven by the strong growth of its cloud and ecommerce businesses, which benefited from the integration of new generative AI features. The company's shares surged by up to 8% in after-hours trading, much to the delight of investors. While Amazon has enjoyed stable growth from its high-spending business customers, it faces stiff competition in the cloud services sector from Microsoft (MSFT. O). AWS CEO Andy Jassy highlighted the unit's focus on customers and feature delivery, emphasizing the incorporation of generative AI across its services. He noted that these new features were beginning to show positive results. On a call with analysts, Jassy also mentioned that generative AI revenue was still relatively small, but expected it to drive billions of dollars in revenue over the next few years. He further revealed that virtually every consumer business operated by Amazon already had or would have generative AI offerings. In the fourth quarter, Amazon Web Services (AWS) reported revenue of $24. 2 billion, in line with analysts' expectations. To strengthen its cloud business and respond to Microsoft's investment in ChatGPT parent OpenAI, Amazon is investing up to $4 billion in chatbot-maker Anthropic. Chief Financial Officer Brian Olsavsky stated that capital expenses for this year would increase to support AWS's growth, including additional investments in generative AI and large language models. AWS's operating margin for the fourth quarter reached nearly 30%. Although this was a significant improvement from the previous quarter, it still fell short of Microsoft's Intelligent Cloud business, which boasted a margin of 48. 2% for the December quarter. Google Cloud's margin stood at 9. 4%. Microsoft and Alphabet (Google's parent company) both reported substantial revenue gains from their cloud offerings in the December quarter, driven by customer interest in new AI features and the creation of personalized AI services.

However, the costs associated with developing these cutting-edge features led to concerns among investors, resulting in a decline in their share prices. Senior analyst Sky Canaves from Insider Intelligence expressed doubts about AWS's ability to compete against its rivals and suggested that all eyes would be on Amazon. Amazon shares have risen by over 6% this year and 41% in the past 12 months, with the company's strong performance contributing to the overall growth of the S&P 500. However, at the start of this year, Amazon began cutting jobs in various divisions, after a significant hiring spree during the pandemic. Olsavsky stated that the company aimed to maintain its headcount but acknowledged that some teams were trying to limit hiring. Amazon has been strategically building fulfillment centers closer to customers, resulting in faster and cheaper delivery of packages. During last year's key shopping events, such as Black Friday and Cyber Monday, customers purchased more than 1 billion items from Amazon globally. Investors are also anticipating an increase in ad revenue for Amazon in the first quarter, following the introduction of ads in its Prime Video streaming service. Although Olsavsky expects the Prime Video ads business to be promising, he did not provide specific details. The company's ad revenue in the fourth quarter rose by 27% to $14. 65 billion, aligning with estimates. Amazon's overall sales for the fourth quarter reached $170 billion, a 14% increase from the previous year and surpassing analysts' average estimate of $166. 21 billion. The adjusted profit per share was $1, beating the average estimate of 80 cents per share. For the current quarter, Amazon forecasts revenue ranging from $138 billion to $143. 5 billion, while analysts predict $142. 13 billion. However, not all of Amazon's plans have been successful, as European regulators blocked its proposed acquisition of iRobot (IRBT. O), the maker of the Roomba vacuum cleaner, for $1. 4 billion.