Amazon Q1 Preview: All eyes on AWS growth, generative AI (NASDAQ:AMZN)
Amazon.com (NASDAQ:AMZN) is set to report first quarter results on Tuesday, with investors focusing on Amazon Web Services (AWS) sales growth, commentary on AI-related demand along with the e-commerce giant’s guidance for the year.
Wall Street expects the Seattle-based company to post EPS of $0.83 on revenue of $142.56 billion, implying a rise of 11.9% during the quarter.
Amazon’s dominance in the e-commerce market shielded it from a tough economy, as consumers continue to use its services for online buying, giving it a competitive advantage over other platforms. Earlier in February, Amazon beat analyst expectation for its crucial holiday-quarter, driven by generative AI capabilities that helped to boost growth in its e-commerce and cloud business.
The company, which also enjoys its position as one of the leading cloud providers, believes that generative AI will “ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.”
The stock has grown 18% so far this year, outperforming the near 7% rise in the broader S&P500 Index.
BofA analyst Justin Post said that continued market share gains as well as introduction of Prime Video ads could drive retail and margin upside during Q1.
Seeking Alpha analysts and Wall Street are bullish and rated the stock a Buy and above, while Seeking Alpha’s Quant ratings see it as a Hold.
Investors will also look into capital expense for the quarter, especially after the company said it anticipates CapEx for 2024 to increase year-over-year, primarily driven by increased infrastructure to support AWS growth and additional investments in generative AI among others.
Wedbush estimates Amazon’s Q1 operating income of $11.6B, about 5% above consensus, while it expects Q1 advertising revenue growth of +24.5% Y/Y.
“Y/Y AWS growth should benefit in 1Q and 2024 from easing comps, moderating pressure from cost optimizations, a resumption in migrations / new deals, and emerging monetization of generative AI solutions,” wrote Wedbush analyst Scott Devitt, adding that the brokerage expects Q1 AWS revenue of $24.6B (+15.0% Y/Y), in line with consensus and implying an acceleration from +13.2% Y/Y in Q4.
However, Seeking Alpha analyst Dan Victor pointed out that the company’s operating margins might face headwinds due to climbing oil and fuel prices, which adds to its fulfillment costs.
There is also ongoing chatter on weather Amazon might announce a dividend alongside its Q1 earnings report.
Over the last three months, EPS estimates have seen 24 upward revisions and no downward revisions, while revenue estimates have been revised upward 23 times versus nine downward moves.
