Amazon (AMZN) is carrying some not-so-positive recent headlines into its third-quarter report due Thursday, with a widespread AWS outage last week and plans for 14,000 layoffs announced Tuesday. But the focus for Amazon stock investors likely remains the same as previous quarters: It’s all about AI.
“In the AWS segment in particular, the company is fighting against a narrative that it is somehow behind in the early innings of the AI revolution, which in turn has kept top-line expectations relatively tempered, along with stock performance,” William Blair analysts Dylan Carden and Arjun Bhatia wrote to clients Tuesday.
Indeed, Amazon stock is significantly underperforming compared to it competitors in the cloud-computing market. Shares are ahead just 4% overall year-to-date, compared to a 40% rally for Google parent Alphabet (GOOGL) and 27.5% gain for Microsoft (MSFT).
That reflects how investors believe Amazon Web Services, or AWS, is losing market share to Microsoft and Google as AI drives demand for computing power, the William Blair analysts said.
Amazon is still considered the overall market leader, but Microsoft’s Azure cloud service and Google Cloud both sharply accelerated their sales growth in recent quarters while Amazon Web Services lagged behind. That disparity caused Amazon stock to sell off following the company’s Q2 report in late July.
That makes AWS sales growth a crucial number to watch for Amazon stock. Analysts are looking for sales of $32.4 billion, representing 18.1% sales growth.
That’s not exactly a huge acceleration from last quarter’s 17.5% growth rate. But Carden and Bhatia wrote that even “modest AWS reacceleration would be seen as win by many investors in the near term.”
Amazon Q3 Preview: What About Tariffs?
The AWS debate has overshadowed the concerns about tariffs on Amazon’s massive e-commerce operations. But Amazon’s retail-focused North America operations drive about 60% of the company’s sales.
Therefore, Chief Executive Andy Jassy’s commentary will be parsed for clues about the impact of tariffs. He has previously said that the company is not seeing a significant increase in prices, nor a decrease in consumer demand.
Analysts project sales for Amazon’s North America division to reached $105.1 billion, up 10% year-over-year. BofA Securities analyst Justin Post wrote in a recent client note that he is expecting upside from Amazon’s retail segment.
“(Bank of America) aggregated credit and debit card data indicates that online spend growth accelerated in 3Q, as did Bloomberg Second Measure credit and debit card data for Amazon,” Post wrote, adding that third-party data “could suggest Amazon is tracking 1%-2% above Street estimates” for North America retail.
Overall, analysts forecast Amazon’s earnings for the September-ended period will be $1.57 per share, up 10%. Sales are seen rising 12% to $177.91 billion.
Amazon’s sale guidance for the holiday quarter will also be closely watched. Analysts polled by FactSet are looking for Q4 sales of $208.35 billion.
Amazon Stock In Cup Base
Analysts remain broadly positive on Amazon. Roughly 96% of the 73 Wall Street analysts with coverage of Amazon stock rate shares a buy or equivalent, according to FactSet.
Meanwhile, Amazon stock is up a fraction at 230.70 in late morning trades on the stock market today. Amazon has gained in seven of the its last eight trading days.
Shares are in a cup base with a 238.85 buy point, according to IBD MarketSurge.
The IBD Stock Checkup tool, meanwhile, shows Amazon stock holds an IBD Composite Rating of 88 out of a best-possible 99. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
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