Amazon Earnings Report: Key Points to Watch
Today, Amazon is set to announce its earnings. Analysts estimate that the company will generate $187 billion in revenue. This would be the first time ever that Amazon leads Walmart in quarterly sales. This is an important milestone, but it also means the market will be watching closely to see how Amazon is doing in a challenging environment.
With some cloud companies like Microsoft and Google facing slower growth, and AI spending increasing, Amazon’s performance will be closely scrutinized. Amazon’s stock price is high, trading at a forward P/E ratio of 39, higher than its competitors Microsoft and Alphabet. Therefore, investors are looking into the outcomes of this Amazon Earning Report.
Cloud Growth: AWS Could Help Boost Amazon’s Earnings
Amazon Web Services (AWS), which is the cloud division of Amazon, is anticipated to be on a 19.3% growth spurt, which will be the highest in the past eight quarters. This is very positive news; however, Microsoft and Google have faced problems in their cloud businesses due to the lack of adequate capacity.
If AWS faces similar problems, then Amazon will be impacted. However, analysts are upbeat. Amazon has focused on optimizing the use of AI, which can help AWS get ahead of its competitors. If AWS keeps performing well, it may turn out to be a good indicator for Amazon’s stock price.
Holiday Sales: Retail is expected to do well
Amazon’s retail business will also shine because of the robust holiday season sales. U.S. consumers spent over $240 billion online between November and December, and thus Amazon is likely to gain a 9% growth in sales in North America compared to last year. This increase in sales comes with faster delivery, more products, and deep discounts. Other retailers, including Target, have also reported good results, indicating consumers are spending more money. If Amazon’s retail business is better than anticipated, it can further push its stock price up.
AI Spending: Risk or Opportunity for Amazon?
One of the major concerns of Amazon is how much it intends to spend on AI. The company is estimating $75 billion in AI-related investments for 2024. While this will help Amazon grow, it raises a question of whether the company can stay profitable with such high spending.
Other tech companies such as Microsoft and Google experienced their stock price dropping after disclosing massive AI budgets, and the investors are scared that Amazon would also be at risk. But the approach by Amazon is somewhat different. The company is more concerned with utilizing AI in a more cost-effective manner, with a focus mainly on its cloud services through AWS. Another revenue source could be Amazon’s Alexa AI assistant, which is to launch soon.
Also, if Amazon keeps showing that it is able to control AI costs without sacrificing progress, it should alleviate the investors’ worries.
Market Reaction: What Will Impact Amazon’s Stock Price?
Amazon’s stock movement post the earnings report will largely depend on how well AWS and the retail side are performing. If AWS delivers strong growth and retail sales are better than expected, Amazon’s stock could rise. On the other hand, if cloud growth slows down or if spending on AI is too high, Amazon could see its stock price drop. Since Amazon’s stock is priced higher than other companies in its industry, investors are expecting strong results. If Amazon doesn’t meet expectations, the stock could face pressure.
Amazon’s Valuation: Is It Worth the Price?
Amazon’s stock has a forward P/E ratio of 39, far higher than those of Microsoft, at 29, and Alphabet, at 22.4. This makes investors believe Amazon will continue growing at a tremendous pace. Therefore, for its stock price to be justified, Amazon needs to show strong earnings, especially both in its cloud business and in retail sales. If Amazon can meet or exceed expectations, it will prove that the stock is worth its premium price. But if the company doesn’t meet those expectations, the stock could face challenges.
