Amazon Stock: Why Q3 Report Will Still Be All About AI And The Cloud

Amazon (AMZN) endured some not-so-positive recent headlines in its third-quarter report due Thursday, with widespread AWS outages last week and plans to lay off 14,000 workers announced on Tuesday. But Amazon stock investors’ focus will likely remain the same as in previous quarters: It’s all about artificial intelligence.

“In the AWS sector in particular, the company is fighting the narrative that it is somehow lagging behind in the early stages of the AI ​​revolution, which in turn has kept top forecasts relatively moderate, along with stock performance,” Dylan Carden and Arjun Bhatia, analysts at William Blair, wrote to clients on Tuesday.

In fact, Amazon stock is significantly underperforming compared to its competitors in the cloud computing market. Shares are advancing just 4% overall year to date, compared to a 40% rise for parent Google alphabet (GOOGL) and a profit of 27.5% for Microsoft (MSFT).

This reflects how investors believe Amazon Web Services, or AWS, is losing market share to Microsoft and Google, as artificial intelligence drives demand for computing power, William Blair analysts said.

Amazon is still considered the overall market leader, but Microsoft’s Azure cloud service and Google Cloud have significantly accelerated their sales growth in recent quarters while Amazon Web Services has lagged behind. This disparity caused Amazon shares to sell off following the company’s second-quarter report in late July.

This makes AWS sales growth an important number to watch for Amazon stock. Analysts are looking at sales of $32.4 billion, which represents sales growth of 18.1%.

That’s not exactly a significant acceleration from last quarter’s growth rate of 17.5%. But even “AWS’s modest reacceleration will be seen as a win for many investors in the near term,” Cardin and Bhatia wrote.

Amazon Preview Q3: What about definitions?

The controversy over AWS has overshadowed concerns about tariffs on Amazon’s massive e-commerce operations. But Amazon’s North American retail-focused operations make up about 60% of the company’s sales.

Therefore, CEO Andy Jassy’s commentary will be analyzed for clues about the impact of tariffs. He previously said that the company is not witnessing a significant increase in prices nor a decrease in consumer demand.

Analysts expect sales for Amazon’s North American division to reach $105.1 billion, up 10% year over year. BofA Securities analyst Justin Post wrote in a recent client note that he expects an upside from Amazon’s retail sector.

“Aggregated credit and debit card data (from Bank of America) suggest online spending growth accelerated in the third quarter, as did Bloomberg Second Measure credit and debit card data for Amazon,” Post wrote, adding that third-party data “may suggest Amazon is tracking 1%-2% above Street estimates” for North American retail.

Overall, AAnalysts expect Amazon’s earnings for the period ending in September to be $1.57 per share, up 10%. Sales are expected to rise 12% to $177.91 billion.

Amazon’s selling guidance for the holiday quarter will also be closely monitored. Analysts polled by FactSet are looking for fourth-quarter sales of $208.35 billion.

Amazon stock in cup base

Analysts remain broadly positive on Amazon. Nearly 96% of the 73 Wall Street analysts covering Amazon stock price shares at buy or equivalent, according to FactSet.

Meanwhile, Amazon stock rose slightly to 230.70 in late morning trading on the stock market today. Amazon shares rose in seven of the last eight trading days.

Shares are in a cup base with a buy point of 238.85, according to IBD MarketSurge.

Meanwhile, the IBD Stock Screener shows that Amazon stock carries an IBD Composite Rating of 88 out of a best possible score of 99. The result combines five separate property ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

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