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By Akash Sriram and Greg Bensinger
(Reuters) -Amazon.com beat fourth-quarter revenue expectations on Thursday as new generative AI features in its cloud and ecommerce businesses spurred robust growth during the critical holiday period.
Investors cheered the results, sending Amazon shares up as much as 8% in trading after the market close.
Amazon's roster of high-spending business customers have provided it stable growth in an uncertain economy, but its position as the world's biggest cloud provider is being challenged by rival Microsoft.
AWS CEO Andy Jassy in a statement touted the unit's "continued long-term focus on customers and feature delivery," citing efforts to incorporate generative AI into many of its services. The new features "are starting to be reflected in our overall results," he said.
Later, on a call with analysts, he said generative AI revenue was still relatively small, and that he expected the technology to drive tens of billions of dollars of revenue over the next several years. He said that virtually every consumer business Amazon operated already had or would have generative AI offerings.
In the fourth quarter, Amazon Web Services (AWS) posted revenue of $24.2 billion, largely in line with analysts' expectations.
To bolster its cloud business and in response to Microsoft's promised $10 billion investment in ChatGPT parent OpenAI, Amazon is spending up to $4 billion in chatbot-maker Anthropic.
Amazon expects its capital expenses this year to increase to support growth of AWS including additional investments in generative AI and large language models, Chief Financial Officer Brian Olsavsky said on the conference call.
AWS's operating margin in the fourth quarter surged to nearly 30%, according to Visible Alpha, just shy of gains in the third quarter.
But those were still well short of December-quarter margin in Microsoft's Intelligent Cloud business - that houses its Azure service - at 48.2%. Google Cloud margin was 9.4%.
Earlier this week, Microsoft and Alphabet reported generous cloud revenue gains in the December quarter, as customers lined up to test new AI features and build their own AI services.
But mounting costs of developing these cutting-edge features irked investors hoping for a big sales boost from the new technology, sending their shares down.
"All eyes will be on AWS, where the mild acceleration of growth ... leaves some lingering doubts about whether the cloud unit will be able to hold its own against rivals," said Insider Intelligence senior analyst Sky Canaves.