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Investors and Analysts Are Losing Their Minds Over Amazon's AWS Numbers

Amazon's stock surged 15 percent on Friday morning in the wake of Amazon's first disclosure about the health of its AWS business.

Asa Mathat

Investors’ on-again, off-again, love affair with Amazon is back on. In a big way.

Amazon’s stock surged 15 percent on Friday morning in the wake of Amazon’s first disclosure about the health of its AWS business, which is a $5 billion behemoth that is way more profitable than most analysts expected.

As a result, all five of the analyst notes I’ve seen this morning have raised their price target for Amazon’s stock, ranging from $450 on the low end to $535 on the high end. The stock is currently trading at $450 as of 10:14 am ET.

Analysts love the fact that AWS, which provides cloud computing and data storage services to startups and big tech companies, has a 17 percent operating profit margin and 50 percent margin when stripping out charges like depreciation and amortization.

Many analysts feared that Amazon’s heavy spending on AWS and series of price cuts would lead to a barely profitable or unprofitable business. But almost every analyst note this morning has included some version of “we were wrong.” (Part of that is a result of Amazon’s habit of giving little to no visibility into how AWS operates.)

They also love AWS revenue growth of 49 percent, though that number is less surprising because the business line that Amazon previously grouped AWS into had been growing much faster than the rest of the business.

Beyond AWS, analysts like that they are seeing signs that Amazon’s huge bets on increasing Prime subscription numbers are paying off. One sign? Revenue for Amazon’s core North American electronics and general merchandise business grew 31 percent year over year in the quarter, which marks a 4 percent acceleration over fourth quarter numbers.

One more reason why analysts are cheering: Amazon gross margins reached a record 32 percent in the quarter, driven by a continued shift to more sales coming from Amazon’s third-party marketplace, which is a more profitable business line.

This article originally appeared on Recode.net.