Amazon (AMZN - Free Report) is set to report its third-quarter results after market hours on Thursday, October 29, as Wall Street closely monitors accelerating demand for Amazon Web Services (AWS), expanding AI capabilities, and the profitability of its e-commerce operations.
With Amazon aggressively investing in AI infrastructure, investors will be looking for strong cloud growth and improving operating margins to justify the company's massive capital expenditures.
Amazon's Q3 Earnings Expectations
The Zacks Consensus Estimate calls for Amazon to post Q3 earnings of $2.01 per share, up 3% year over year, with quarterly revenue projected to increase 12% to $202.11 billion.
Amazon's own guidance called for quarterly sales of $197-$202 billion, with operating income expected to range between $22.5 billion and $26.5 billion.
It's noteworthy that the year-over-year sales comparison faces a headwind from Prime Day shifting into the second quarter this year.
AWS, AI Chips & Advertising Growth in Focus
Amazon Web Services remains a major growth catalyst after AWS revenue surged 37% YoY to $42.23 billion during Q2, marking its fastest expansion in 18 quarters.
Based on Zacks projections, AWS revenue is expected to jump another 37% to $45.41 billion from $33 billion in Q3 2025, supported by growing demand for AI computing and enterprise cloud services.
Investors will also be watching Amazon's custom Trainium AI chips, which have attracted multiyear commitments from OpenAI and Anthropic, alongside the continued adoption of Amazon Bedrock.
Notably, Amazon Bedrock enables businesses to build and deploy generative AI applications using models from leading developers, including Meta Platforms (META - Free Report) and Anthropic.
Meanwhile, Amazon's high-margin advertising business is expected to remain another growth driver, with Q3 ad revenue projected to rise nearly 18% to $20.87 billion.
However, Amazon's anticipated $220 billion in annual capital expenditures raises concerns about free cash flow and whether AWS growth can justify the company's aggressive infrastructure investments.
AMZN Stock Performance & Valuation
Amazon shares have risen 10% year-to-date, supported by accelerating AWS growth and improving profitability across its cloud and retail operations.
That said, AMZN has slightly trailed the S&P 500's 11% year-to-date gain and the Nasdaq's 14% return, despite outperforming the Zacks Internet-Commerce industry's 2% decline.
Over the last three years, AMZN's 91% return has been roughly on par with the S&P 500 while outpacing the Zacks Internet-Commerce industry's 62% gain, but has trailed the Nasdaq's 107% advance.
Image Source: Zacks Investment Research
At recent prices near $250 per share, AMZN trades at roughly 24X forward earnings, representing a premium to both its Zacks industry average and the S&P 500's roughly 19X multiple.
Still, Amazon's accelerating AWS growth, expanding AI infrastructure, and high-margin advertising business could help justify its premium valuation.
Image Source: Zacks Investment Research
Bottom Line
Amazon's accelerating AWS growth, expanding AI-chip business, and improving advertising revenue provide encouraging catalysts ahead of Thursday's earnings report.
However, elevated capital expenditures and a premium valuation warrant some caution, with AMZN currently landing a Zacks Rank #3 (Hold) as investors await further evidence that its massive AI investments will generate sustainable returns.
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