Analysts are closely watching Amazon’s third quarter earnings, particularly focusing on the growth of the company’s cloud computing unit, Amazon Web Services (AWS), and the margins of its retail segment. Wall Street expects revenue of $157.3 billion, which is on the high end of the company’s guidance, and earnings per share of $1.14. Investors are particularly interested in the impact of AI adoption on cloud computing giants, with both Google and Microsoft reporting strong results for their cloud units recently. Analysts anticipate AWS revenue growth of 20% year-over-year, up from 12% in the previous year and 18.7% in the second quarter, due to improved non-AI and AI workloads in the quarter.
Amazon reported lower-than-expected sales in the second quarter, despite nearly doubling its profits. CEO Andy Jassy highlighted the company’s efforts to lower its “cost to serve,” allowing for more sales of products at lower average selling prices. Analysts from Morgan Stanley noted that Amazon’s focus on lower-priced, lower-margin essentials may create merchandise margin pressure, especially with expected discounting in a competitive holiday season. The company recently announced a wage increase for hourly warehouse workers and additional investment in its Delivery Service Partner program. Jassy’s memo outlining plans to increase the ratio of individual contributors to managers in the corporate workforce could result in significant savings of $2 to $4 billion in 2025.
Another area of interest for analysts is Amazon’s satellite internet business, Project Kuiper, which saw increased investment in the second quarter. Wedbush analysts predict that Amazon will start generating revenue from Kuiper in late 2025 or early 2026, which will help offset costs as the project continues to scale. They also have a positive outlook on the company’s advertising business, expecting higher growth rates compared to the second quarter. Despite a sharp decline in Amazon’s stock following the second quarter earnings report, shares have rebounded in the past three months, with a nearly 30% increase in value this year.
Overall, analysts are optimistic about Amazon’s ability to capture incremental demand in its cloud computing unit with the continued innovation in AI and ongoing chip innovation. The company’s efforts to lower costs and focus on lower-priced essentials may impact merchandise margins, especially in the face of expected discounting during the competitive holiday season. The increased investment in Project Kuiper and the positive outlook for the advertising business also contribute to the positive sentiment around Amazon’s future growth potential. Despite fluctuations in its stock price, Amazon continues to demonstrate resilience and adaptability in response to market dynamics and consumer trends.
