Is AI gambling worth it? Amazon (AMZN.US) earnings were revealed after the market, and AWS growth became a key verification

The Zhitong Finance App learned that Amazon (AMZN.US) will release its third quarter earnings report after the market on October 29 (Thursday) EST. The market is closely monitoring whether its cloud business can reproduce the strong growth of the previous quarter to boost recent weak stock prices. As of press time, Amazon was down 1.8% in the premarket.

The key to the stock price rebound: Can AWS reproduce high growth

Strong cloud business growth has caused Amazon's stock price to soar since the last earnings report was released. On July 31, the e-commerce and cloud computing giant's second-quarter earnings report showed that the revenue growth of its cloud business AWS accelerated and was faster than Wall Street expectations, driving the stock price to the biggest one-day increase since 2012. However, since then, stock price performance has been weak, down 10% from the high in early August due to market concerns about AI transactions, rising pressure on interest rates, and competition from AI services such as Muse under Meta Platforms, all of which have dragged down market sentiment.

Therefore, as Amazon is about to release its third quarter earnings report, investors expect AWS to repeat the performance of the previous quarter. Analysts expect the business's revenue for the quarter to increase nearly 40% year over year to reach 45.7 billion US dollars.

“A year ago, investors would have wondered if they could do this,” said Jed Ellerbroek, portfolio manager at Argent Capital Management, which holds Amazon shares. “I think we'll see AWS deliver excellent results.”

Cloud Vendor Test: Can AI Investments Be Rewarded?

As Amazon released its earnings report, it was a week of intensive earnings releases from hyperscale cloud vendors. Investors are increasingly concerned about whether huge investment in AI infrastructure can bring real returns. Anthropic PBC filed for an initial public offering (IPO) on Monday to help ease market concerns about the health of AI transactions and the size of debt — concerns that have been suppressing the performance of tech stocks in recent weeks.

Both Microsoft and Alphabet fell short of expectations in their earnings reports released late Wednesday. Microsoft's pre-market share price rose on Thursday due to better-than-expected cloud business revenue; while Alphabet plummeted as third-quarter profits and sales fell short of analysts' expectations.

Wall Street expects Amazon to deliver solid quarterly results: revenue up 12% to $2020 billion, and net profit up 2% to nearly $22 billion.

Capital expenditure: the variable that gets more attention than performance

In addition to AWS's performance, investors will also keep a close eye on the company's capital expenditure. Amazon raised its capital expenditure forecast last quarter, mainly due to high memory prices. Investors will probably not be surprised if the spending forecast is raised again this time. Analysts' expectations for capital expenditure in 2026 have risen to around $222 billion, and expectations for 2027 are close to $290 billion.

“We have to figure out where spending will peak and how long this spending will last,” said Jake Behan, head of capital markets at Direxion, adding that this needs to happen in parallel with the acceleration of AWS revenue growth, that is, “from high growth to higher growth.”

Evercore ISI analyst Mark Mahaney believes that how Amazon reaches this level of AI spending may be more important to the stock price than the quarterly results themselves. Meta's strong earnings report last week was overshadowed by its financing needs as investors increasingly worried that capital spending would hurt free cash flow and whether companies would finance AI construction through equity or debt. Amazon's free cash flow is expected to be negative this year and next.

“The intensification of AI capital competition has also increased the possibility of large-scale equity financing,” Mahaney wrote in the October 23 report. “We will not directly apply the Meta situation to Amazon because we believe Amazon is better prepared than most companies to finance AI construction (relying on debt rather than equity).”

Hidden chips: Anthropic holdings and 500 billion orders

The market's optimistic response to Anthropic's IPO application may also benefit Amazon, as the company's holdings in Anthropic have boosted its profits in recent quarters. Anthropic's valuation of this IPO may be as high as 1.75 trillion US dollars. According to Oppenheimer & Co. analyst Jason Helfstein's calculation, every 1 trillion US dollar increase in Anthropic's market value will bring about 7% increase to Amazon's current market value of about 2.7 trillion US dollars.

In his research report last week, he wrote that Anthropic's IPO “will provide more disclosure on the computing power needs of cloud vendors, such as the approximately $111 billion it has promised to invest in AWS.”

Amazon's statement of remaining performance obligations and the progress of the collection of these contract payments are also critical. Amazon's second-quarter backlog of orders was close to $500 billion.

Direxion's Behan said, “We have to know if Amazon's backlog is really limited by supply, and we've seen this happen elsewhere. What's the monetization potential of these backlogs?”