Initially, the market was rewarding big capex forecasts like META, but soon changed its tune and started penalizing companies for beating expectations by too much, as seen with GOOGL. This has put Amazon in a tricky position as it gears up to announce its earnings after the market closes today. The focus will primarily be on its capex forecast, with the earnings expected to be satisfactory.
Looking at the broader market sentiment, Bloomberg highlights that Amazon’s stock price has already dropped over 4% on the day of the earnings announcement, signaling some apprehension among investors. Following the recent announcements by tech giants like Microsoft and Alphabet about their significant spending plans, Amazon might benefit from taking a more conservative approach and projecting moderate capital expenditure for 2026.
Analysts are not predicting substantial growth for Amazon, with diluted earnings per share expected to rise only slightly year-on-year to $1.96 in the fourth quarter. Revenue from Amazon Web Services is projected to increase by 21% to $34.9 billion, but this is still less than half of the revenue generated by the company’s online stores. The slower growth in online stores revenue, around 9% year-on-year, underscores the importance of the cloud business’s profitability for Amazon.
Aside from capex forecasts, JPMorgan’s trading desk anticipates an acceleration in AWS growth and a focus on AI positioning for Amazon. The sentiment remains bullish, with concerns lingering about Amazon’s AI strategy compared to its competitors. The firm sees potential for margin expansion in North America and International markets and expects solid AWS margins despite potential quarter-on-quarter declines.
Key focal points for Amazon include accelerating growth in core areas, increased capacity expansion, and monitoring AWS growth compared to competitors like Azure and Google Cloud. The company’s execution in online stores and cost efficiency through robotics and automation will also be closely watched.
Despite positive sentiments from JPMorgan, UBS strategist Dwyer notes that investors have been questioning why Amazon’s stock has not performed better. The company will need to meet certain benchmarks, such as achieving 22-23% year-on-year growth in AWS revenue and maintaining EBIT margins within the guided range, to satisfy buy-side expectations.
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