Amazon (AMZN) is scheduled to post quarterly earnings after the bell on Thursday, wrapping a wave of Big Tech results that have flashed warnings that investors have limited patience for massive AI spending.
The company is expected to offer updates on the progress of its AI initiatives, the growth of its lucrative cloud business, and the build-out of its advertising segment.
Amazon’s report will arrive days after its cloud rival and AI competitor Microsoft (MSFT) beat expectations on the top and bottom lines but missed on cloud revenue, sending shares lower. Prior to that disappointment, Google parent Alphabet’s (GOOG, GOOGL) posted lower than expected YouTube ad revenue, which also sent investors running.
Meta (META), on the other hand, earned the applause of Wall Street, delivering better than expected results for revenue and profit, even as executives warned they anticipate “significant” capital expenditures in 2025. Shares were up 10% Thursday morning. Apple (AAPL) will round out earnings from the major tech platforms after the closing bell.
The mixed reactions to the reports so far highlight the evolution of the AI trade. It is no longer enough to commit massive resources to ambitious AI initiatives. Investors and analysts are now looking for returns on those investments, or in place of new revenue streams, more details about when major spending will start to pay off.
Here’s what Wall Street is expecting for some of Amazon’s most significant metrics in the company’s fiscal fourth quarter:
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Revenue: $148.8 billion expected ($134.4 billion in Q2 2023)
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Adjusted earnings per share: $1.04 expected (65 cents in Q2 2023)
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Amazon Web Services: $26 billion expected ($22.1 billion in Q2 2023)
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Advertising: $13 billion expected ($10.7 billion in Q2 2023)
Amazon CFO Brian Olsavsky told reporters last quarter that overall capital expenditures are expected to “meaningfully” increase this year from nearly $50 billion in 2023, driven by higher infrastructure costs to support growth in AWS.
The company sees the potential for AI initiatives to generate tens of billions of dollars for its cloud business. Customers have been signing up for longer AWS deals with bigger commitments, many with generative AI components, executives have said.
In a note ahead of earnings, Bank of America Global Research analysts said they expect a second quarter that exceeds expectations for revenue and operating profit, owing to accelerating demand for AWS services and AI features, the potential ramp up of Prime Video ads, and an outlook boost from Prime Day benefits.
Goldman Sachs analyst Eric Sheridan pointed to AWS’s growth trajectory and the advertising segment’s contributions among Amazon’s strengths.
Last quarter, advertising revenue swelled by 24%. AWS sales jumped by 16%, and executives said the business line is on track to generate $100 billion annually. Both segments are expected to grow again by double digit percentages.
Amazon, which has positioned itself as an AI leader, is another player in the arms race to claim AI market share and launch new enterprise and consumer services. But the mood around AI investments has shifted in recent days. Coming off lackluster results from cloud and AI leaders, Wall Street has adopted a more discerning stance toward AI spending.
But analysts say Amazon is well positioned to capitalize on the AI transition. As the biggest player in the cloud industry, Amazon Web Services claims about 30% of market share, followed by Microsoft Azure and Google Cloud. The trio collectively account for roughly two-thirds of the market.
Meanwhile, on the ecommerce front, the everything store has drawn increasing competition from the likes of Temu and Shein, companies that specialize in low cost goods that rely on a direct-from-factory supply chain. Amazon is reported to be developing a low-cost digital storefront of its own, to directly compete for fashion and lifestyle spending. It’s possible Amazon will offer an update on those efforts as it works to defend its online shopping empire.
Amazon’s earnings report will arrive just a day after the conclusion of the Fed’s July policy meeting, when officials kept interest rates unchanged but signaled that the first cut is on the table for their next meeting in September. The timing of an eventual easing cycle will impact Amazon and other major tech stocks, which have powered 2024’s equity rally.
Investors are also looking out for a dividend surprise. Amazon is the last remaining Big Tech company to refrain from offering one, as Meta, Alphabet and Apple (AAPL) recently announced or expanded their shareholder return programs.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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