Amazon shares edged higher in Tuesday trading ahead of the tech and retail giant’s highly anticipated first-quarter report after the closing bell.
Amazon (AMZN) , the second-best performing stock of the so-called Magnificent 7 so far this year, topped the $2 trillion market value threshold earlier this month as its rivals forecast big gains from their AI investments over the coming years.
However, Amazon’s influence extends far beyond its flagship Amazon Web Services division. Its leadership position in online retail and its growing significance in streaming media and live events mean this “everything stock” is one of the market’s most important names.
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Analysts expect Amazon to post a bottom line of 83 cents share, with operating income of $11.13 billion, on revenue of $142.5 billion.
Below is a quick compendium of the key elements of tonight’s earnings release and conference call, which is expected to include an artificial-intelligence road map from CEO Andy Jassy.
AWS will sit at the forefront of Amazon’s AI ambitions. It is expected to post first-quarter sales of around $25.5 billion.
1. AWS – the beating heart of Amazon
Amazon Web Services, or AWS, is the one of the fastest-growing divisions within the group and drives the bulk of its nonretail revenue.
It’s also at the forefront of AI innovation at Amazon and is seen as perhaps the only major challenger to Microsoft’s (MSFT) Azure in terms of data-center sales.
Amazon launched a business-focused Chatbot, called Q, last year as part of its effort to keep pace with Microsoft’s Copilot. Amazon also plans to make a new series of AI chips that will complement those made by Nvidia (NVDA) to boost its servers’ speed and processing power.
“We believe AWS investments in data centers and their custom chips set it up well for the next leg of growth from generative AI,” said D.A. Davidson analyst Gil Luria.
“While AWS may still be trailing Azure on generative-AI capabilities, we believe the market is giving all the credit to Microsoft and not enough for Amazon’s ability to catch up.”
Analysts expect AWS’s Q1 revenue rose 15% from a year earlier to $25.33 billion, with investors focused on near-term growth rates and its plans to close the gap with Azure.
“AWS services, at all three layers of the stack, comprise a set of primitives that democratize this next seminal phase of AI, and will empower internal and external builders to transform virtually every customer experience that we know (and invent altogether new ones as well),” Jassy told investors earlier this month.
“We’re optimistic that much of this world-changing AI will be built on top of AWS,” he added.
2. Amazon’s AI ambitions in sharp focus
Amazon’s drive to infuse AI across its sprawling online businesses, as well as its AWS unit, will be a key focus of both its first-quarter earnings and Jassy’s call with analysts and investors.
“We’re building a substantial number of GenAI applications across every Amazon consumer business,” Jassy told investors on April 11.
“These range from Rufus (our new, AI-powered shopping assistant), to an even more intelligent and capable Alexa, to advertising capabilities (making it simple with natural language prompts to generate, customize, and edit high-quality images, advertising copy, and videos), to customer and seller service productivity apps, to dozens of others,” he added.
Andrew Ng, who lead AI projects at Alphabet and Baidu, was also named to the Amazon board earlier this month.
Both Microsoft and Alphabet (GOOG) , Amazon’s main hyperscaler rivals, noted solid AI-related gains in their March quarter updates and said demand was largely outpacing supply constraints well into next year.
That could put the group’s recent investment into Anthropic in sharp focus as the OpenAI challenger will use Amazon’s Trainium and Inferentia chips to run its models. That likely means Amazon is looking to augment its purchase of graphics-processing units from market-leader Nvidia (NVDA) with an in-house option that could reduce its exposure to capacity constraints.
“We believe the recent crossover of Nvidia becoming more valuable than Amazon crystallizes the current opportunity,” said Luria at D.A. Davidson. “The question is simple: Would you rather own a ~$100 billion revenue cyclical hardware business or ~$100 billion revenue hyperscaler (with an advertising and retail business thrown in as a sweetener)?”
3. Capital-spending increases expected
All these developments, of course, will require a significant spending commitment from Amazon, which has only just exited an era of cost-cutting and layoffs tied to the streaming of its fulfillment division.
“We see substantial opportunity in the large markets we are targeting,” Jassy said in his letter to shareholders. “This strategy is not without risk: it requires serious investment and crisp execution against established franchise leaders.”
Amazon CFO Brian Olsavsky told investors earlier this year that while it’s still working through spending plans for the year, “we do expect capex to rise as we add capacity in AWS for region expansions, but primarily the work we’re doing with generative-AI projects.”
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Luria at D.A. Davidson sees a capital-expenditure run rate of around $55 billion a year for Amazon, which includes its reported commitment to spend $150 billion over the next 15 years on data-center investments alone.
CFRA analyst Arun Sundaram notes that Amazon generated $37 billion in free cash flow last year, following three years of heavy investment. He sees that number doubling to $76 billion this year and rising to $103 billion in 2025.
That should allow for wider margins and higher profit, he argues, even with the step up in capex tied to AWS and generative AI.
4. Retail sales and margins improving
Amazon’s move earlier this month to launch a grocery delivery subscription service, tied to its Prime membership base, will likely be the focus of questions for the group’s retail division when Jassy speaks to analysts after the first-quarter update.
The new plan will enable Prime members to pay $9.99 per month for unlimited delivery orders over $35 from Whole Foods Market and Amazon Fresh as it looks to challenge grocery delivery leaders such as Walmart (WMT) and Target (TGT) .
JMP Securities analyst Nicholas Jones says the launch is a “logical next step” for the group, given its recent investments. The analyst added that “Amazon has the infrastructure to be competitive within the category without meaningful incremental investment” and the program should be “attractive to Prime members.”
Related: Analysts reassess Amazon stock-price targets ahead of earnings
Analysts expect Amazon’s overall online sales rose 6.75% from a year earlier to $54.55 billion, with third-party sales rising 16% to $34.66 billion.
Ad revenue, meanwhile, one of the most underrated growth drivers in the group, is forecast to have risen 23.2% to $11.72 billion.
“Amazon’s retail business should benefit from faster delivery speeds and broader product assortment, along with the company’s first ever Big Spring Sale event,” said CFRA analyst Arun Sundaram.
“We expect retail margins to strengthen both domestically and internationally. We also believe there are plenty of incremental efficiencies left to be unlocked.”
5. Amazon Prime Video ‘standalone’ potential
Jassy told investors earlier this year that Amazon has “increasing conviction that Prime Video can be a large and profitable business on its own” and plans to continue investing in new content for the platform.
“This confidence is buoyed by the continued development of compelling, exclusive content, Prime Video customers’ engagement with this content, growth in our marketplace programs and the addition of advertising in Prime Video,” Jassy said in a letter to shareholders on April 11.
Alongside Prime’s NFL Thursday Night Football package, Amazon is reportedly set to become the NBA’s third television partner (along with Disney’s (DIS) ESPN and Warner Bros. Discovery’s (WBD) TBS) starting with the 2025-26 season.
Prime is also expected to have added around 98 million ad-supported subscribers over the first three months of the year, after Jassy told investors earlier this month that monthly viewers have now reached 200 million.
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Amazon shares were marked 0.33% higher in recent trading and changing hands at $181.56 each. The stock has risen around 20% this year, making it the best-performing Mag 7 stock outside of Nvidia, and carries a market value of around $1.9 trillion.
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