Amazon's Jassy: We're "surprised" at growth of our generative AI business

• "We're still seeing elevated customer optimization levels ... but it's meaningfully attenuating from where we've seen the last few quarters," said Jassy.

Back it up: Companies have been cautious about spend since last year amid recession fears. (The U.S. economy grew at its fastest pace in nearly two years in Q3.)

• Amazon's cloud business — Amazon Web Services — is a huge channel through which the company can offer AI services and its growth or slowdown was a big question coming into today's earnings.

By the numbers: Though the company's overall profit more than tripled from last year's comparable period, revenue growth of AWS, specifically, remained flat from last quarter at 12%, which is down from 28% a year ago.

• The stock initially fell in after-hours trading on the news, but quickly rebounded about 5% as Jassy spoke on the call about the business.
• He named dropped Adidas, GoDaddy, Merck, United Airlines and Bridgewater as among a growing number of companies that are building generative AI apps on AWS.

Between the lines: Investor reaction to Amazon's third quarter results Thursday night reflects Wall Street's new attitude toward AI.

• "Some of the bloom is coming off of the rose," Tom Forte, senior research analyst at D.A. Davidson, tells Axios about the hype around AI.
• They're now more skeptical and concerned about how AI will impact income statements, especially given how costly AI investments will be.
• Earlier in the week, Wall Street similarly rewarded Microsoft for providing evidence of demand in its own AI products and services while punishing Alphabet for having less clarity on demand.

The big picture: With Microsoft and Google cloud services growing at a 20% to nearly 30% pace, "mathematically … Amazon's going to be losing share in cloud," Gene Munster, managing partner at Deepwater Asset Management, told CNBC.

• During the call, Jassy and CFO Brian Olsavsky sought to allay concerns about any shrink in its market share dominance by saying that the company's volume of closed AWS deals has picked up.

💭 Our thought bubble: Great AI products may translate into greater customer loyalty for cloud services, but because firms are still experimenting with what AI programs work, there will likely be a lot of churn across all cloud providers.

Threat level: "We've been talking too much about how [tech companies] are living by the sword [of AI], but I think they could also die by it," says Forte.

What to watch: Olsavsky said despite cost-conscious corporate clients, Amazon is "encouraged by the strength of our customer pipeline."

• Olsavsky told Axios earlier in the day that there has been industry variability with regard to cloud spend, and that AWS has actually been lowering its prices.

The rest of Amazon

The company, overall, beat on expectations for its top and bottom lines and on its advertising revenue.

• Profitability improvement of AWS was "primarily driven" by layoffs, Olsavsky said on the call.
• In terms of online sales, Olsavsky said says consumers are still trading down where they can and "remaining cautious about price."

For the current holiday quarter, the company projects sales to come in around $164 billion at the mid-point of its guidance range, which is slightly less than what analysts were expecting.

With respect to its streaming business, Jassy said Amazon Prime Video shows and movies will include "meaningfully fewer ads" than other streaming services and linear TV when it launches next year.

Of note: The company did not mention the Israel-Hamas war directly on the call, nor the FTC's lawsuit.

Disclosure: Forte and/or members of his household holds a long position in securities of Amazon.

Look back: Amazon overshoots Q2 expectations amid cost-cutting and AI optimism