Amazing what some foreign-exchange fluctuations and eye-popping capex guidance will do to a large-cap tech stock.
Shares of Amazon (AMZN) were clipped by 3% to $231.80 each in pre-market trading on Friday, after the tech giant delivered mixed first quarter guidance and promised big spending on AI infrastructure in 2025.
The company's ticker page was the most active on the chof360 Finance platform, ahead of retail-investor favorite Palantir (PLTR), which has been on a post-earnings tear this week.
Amazon guided to first quarter revenue of between $151 billion and $155 billion. Analysts were anticipating $158 billion, with the miss the function of a $2.1 billion expected hit from currency fluctuations.
Similar to Microsoft (MSFT) and Meta (META) this earnings season, Amazon uncorked a whopper of a capex guide. It sees $104 billion in capex spending this year, well above analyst forecasts of $80 billion to $85 billion.
The Street has opted to stay bullish on Amazon after its results for two reasons, however.
Most analysts have pointed to a sales re-acceleration in the key Amazon Web Services cloud business later this year, amid the company's aggressive capex spending.
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"The shares have pulled back on the guidance and the fact that 2025 is likely an investment year, but we expect by second half 2025 this heavy capex investment + accelerating AI adoption (which we believe will also accelerate the move to the cloud) should begin to materially re-accelerate cloud revenue," Pivotal Research analyst Jeffrey Wlodarczak said in a client note.
The other factor is that Amazon just had a good quarter.
What stood out to chof360 Finance:
Three straight quarters of 19% sales growth for AWS.
AWS operating profit margin of 46.9%, versus 29.6% a year ago.
Second consecutive quarter of accelerated sales growth at Amazon's physical stores.
Amazon delivered its highest quarterly operating income ever at $21.2 billion.
Here are several of the best Wall Street insights on Amazon's quarter and outlook.
"Amazon has a deep moat around their core businesses driven by their unmatched scale and appears to have numerous healthy organic revenue growth opportunities driven primarily by their high margin AWS cloud segment (which we expect to grow from 17% of revenue to ~35% in 5 years), extension of their e-commerce/fulfillment arms into new segments/internationally, continued rapid growth in their advertising business [already #3 in the world behind GOOG (BUY) and META (BUY)] and proven ability to develop new successful products/revenue streams leveraging their massive scale. This is all enhanced by what we believe is the potential to materially boost operating margins driven by scale, leveraging robotics/AI and benefits from an increasing % of revenue from high margin cloud computing/advertising combined with what appears to be an attractive valuation. AMZN remains on track at AWS and appears ahead of schedule on better monetization in its core retail/advertising/subscription businesses."
Story Continues
"Commentary from management suggested that AWS is healthy with adoption across their services, whether they be AI-related or non-AI. Furthermore, it was noted that while it wasn't a huge impact, once AWS becomes less capacity constrained, they expect they'll be able to accelerate growth even more which they expect to occur in the back half of the year. We continue to believe that AWS is the best positioned of the three hyperscalers, as conversations with our DEN experts indicate that Amazon has quickly caught up and now surpassed Azure in AI-related services."
"Amazon views GenAI as the largest opportunity since cloud and the biggest tech shift since the Internet, w/virtually every app likely to infuse GenAI and most companies utilizing agents over time. Amazon views the $26.3B capex in 4Q as a reasonable representation of its 2025 capital investment rate, translating to about $105 billion in 2025 annual capex. The majority of spend will support growing need for tech infrastructure for demand across AI services, along w/support for North America and International. Amazon noted it only procures infrastructure given strong demand signals, which we view as bullish for AWS’ multi-year growth trajectory. In light of DeepSeek, CEO Andy Jassy believes the cost of inference will substantially come down over time. However, similar to cloud, where AWS cut prices 134 times between 2006-2023, Amazon believes lower inference costs will increase customers’ total spending as customers infuse applications w/inference and GenAI (i.e. Jevons Paradox). Like for Meta (META) and Alphabet (GOOG), heavy infrastructure investment should be a competitive advantage, and we believe the spending bodes well for multiple years of strong AWS revenue growth."
"We reiterate our Outperform rating and $280 price target and highlight possible catalysts in the intermediate-term, including (1) growing AI contributions to AWS growth as capacity constraints abate beginning in 2H25, (2) more meaningful improvements in cost to serve driven by deeper automation and robotics, (3) commercialization of AI capabilities in Alexa, (4) monetization of Project Kuiper which could begin late this year or in 1H26, and (5) an expected increase in Prime Subscription prices early next year."
Brian Sozzi is chof360 Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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