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Amazon's AI Bet Under Watch, AWS Key in Earnings Spotlight

Amazon's earnings spotlight AI investment strategy amid tech sector scrutiny, with AWS and potential capital return strategies in focus.

By Max Weldon

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4/30, 10:00 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Amazon.com, Inc.
Alphabet Inc.
Meta Platforms, Inc.
Microsoft Corporation
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Key Takeaway

  • Amazon's earnings will test investor sentiment on AI spending, with focus on AWS and generative AI's impact on profitability.
  • Meta Platforms' recent earnings slump over AI investment concerns sets a cautionary backdrop for Amazon.
  • Investors eye potential dividend announcements from Amazon, amidst expectations of an 8% stock move post-earnings.

AI Investments Test Tech Giants

Amazon.com Inc. is under the spotlight as its upcoming earnings report is seen as a critical test of its artificial intelligence (AI) investment strategy. This follows a tumultuous period for tech stocks, highlighted by Meta Platforms Inc.'s earnings miss, which led to a significant selloff. Conversely, Alphabet Inc. and Microsoft Corp. provided some relief with their positive earnings outcomes. The focus for Amazon will be on its web services segment and its efforts in generative AI, with options traders anticipating a significant stock price movement post-earnings.

Wall Street Eyes Amazon's Cloud and AI Strategy

Investors and analysts are keenly awaiting Amazon's strategy around its AWS segment and AI investments. Paul Marino of GraniteShares highlighted the importance of AWS's market share and AI initiatives in bolstering Amazon's bottom line. The tech giant's heavy investment in generative AI cloud services, aiming to generate billions in revenue, is under scrutiny. The clarity of Amazon's outlook, especially in the context of Meta's recent slump due to vague future projections, is crucial amidst expectations of prolonged higher interest rates.

Capital Return Strategies in Focus

The tech sector's earnings reports have also spotlighted capital return strategies, with Alphabet announcing a new dividend and a $70 billion buyback program. This move has shifted attention to Amazon, the last major tech firm without a dividend, sparking speculation about a potential dividend announcement or an expansion of its buyback program. Amazon's performance and strategic decisions in this earnings report could significantly influence investor sentiment, especially given its high valuation and monopoly status in several markets.

Street Views

  • Paul Marino, GraniteShares (Neutral on Amazon):

    "It’s all about AWS, how much they’re maintaining market share and then what they’re doing in AI to increase the bottom line... none of that means anything if what they’re doing in the cloud, and what they’re going to do with AI, doesn’t bear fruit."

  • Brian Mulberry, Zacks Investment Management Inc. (Neutral on Meta Platforms Inc.):

    "They were not very clear about what the next couple of quarters look like, they were not very clear about what AI gains will mean to them in terms of profitability... It’s more about what is your guidance looking like, knowing that interest rates are now going to be higher for longer."

  • Ted Mortonson, Robert W. Baird & Co., Inc. (Cautiously Optimistic on Amazon):

    "AWS has to see material acceleration," or Amazon stock will be sold.