• Amazon Web Services was more profitable in the quarter than analysts had predicted, while the segment's revenue was in line.
• During the quarter, AWS expanded its Nvidia relationship while also introducing an artificial intelligence training chip.

Amazon said on Thursday that its cloud division grew revenue 13% year over year in the fourth quarter, exactly in line with analysts' projections. The company pointed to growing traction in cloud services for artificial intelligence.

Many large technology companies have worked quickly to release new products or update existing ones to capitalize on corporate interest in replicating generative AI capabilities after startup OpenAI introduced the ChatGPT chatbot in late 2023. Amazon Web Services, for its part, introduced the Q chatbot for developers and nontechnical corporate workers, along with the Trainium2 chip for training AI models, in the fourth quarter.

AWS posted $24.20 billion in revenue in the quarter. Analysts polled by StreetAccount had been looking for $24.20 billion. Growth sped up from 12% in the third quarter.

"We expect the acceleration to continue in 2024," Brian Olsavsky, Amazon's finance chief, said on a call with reporters.

But at least in the fourth quarter, AWS' top U.S. challengers continued to grow faster. Revenue from Azure and other cloud services at Microsoft rose 30%, and Alphabet's Google Cloud revenue, which includes Google Workspace productivity software subscriptions, increased about 26%.

Many companies spent time trying to reduce the amount of money they spent on cloud resources as interest rates moved higher, heightening economic concerns. But that trend has been receding.

"While cost optimization continued to attenuate, larger new deals also accelerated," Amazon CEO Andy Jassy, the former head of AWS, said on the company's earnings call. He said clients are "renewing at larger commitments over longer periods, and migrations are growing."

The Amazon cloud group turned over $7.17 billion in operating income. That's up around 38% and above the StreetAccount consensus of $6.93 billion. That means AWS delivered 54% of Amazon's $13.21 billion in total operating income.

AWS now represents 14% of Amazon's overall revenue.

At the AWS Reinvent conference in Las Vegas in November, Adam Selipsky, Amazon's cloud leader since 2021, welcomed Nvidia CEO Jensen Huang to the stage to announce a broadening partnership, which included a cluster of Nvidia graphics processing units that Nvidia and cloud clients can use. Huang has also kept GPUs flowing to Google and Microsoft, among other cloud infrastructure providers.

In a statement, Amazon highlighted AWS AI wins during the quarter from the likes of Accor S.A., Mitsubishi UFJ Financial Group, Salesforce and The Very Group.

"Gen AI is and will continue to be an area of pervasive focus and investment across Amazon, primarily because there are few initiatives if any that give us the chance to reinvent so many of our customers experiences and processes, and we believe it will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years," Jassy said on the earnings call.

Starting in January, Amazon is extending the useful life of its servers from five years to six, a change that should boost first-quarter operating income by $900 million, Olsavsky said on the earnings call. Amazon announced similar changes in 2020 and 2022.

WATCH: AWS growth and margin expansion will drive Amazon's stock higher in 2024: Evercore's Mark Mahaney

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