Amazon: Cloud Takes Center Stage Ahead of Keenly-Anticipated Q3 Earnings

Amazon (NASDAQ:AMZN) is gearing up to announce its quarterly results this Thursday, capping off a week filled with major corporate earnings reports.

Investors are eagerly anticipating the outcome, particularly after a series of recent earnings announcements that included a positive surprise from Microsoft and setbacks for Alphabet.

Notably, Amazon shares are heading into this reporting season amid a correction phase, with a nearly 17% decline since reaching their annual peak of $145.86 on September 14.

This decline includes a recent drop of over 5% on Wednesday, although the stock maintains a year-to-date gain of approximately 50%.

Beyond these key figures, investors will be particularly interested in the results of Amazon Web Service (AWS), Amazon's cloud services division, which is the main contributor to the company's earnings.

Alphabet (NASDAQ:GOOGL) stock fell and Microsoft (NASDAQ:MSFT) stock rose this week because of the former's poor performance and the latter's strength in the cloud services segments.

Therefore, Alphabet's performance in terms of AWS revenue is set to influence the stock price.

Breaking down the headline figures, the InvestingPro consensus of analysts anticipates earnings per share (EPS) of $0.60.

While this represents a decrease from the prior quarter's $0.65, it more than doubles the $0.28 EPS recorded during the same quarter the previous year.

Furthermore, it's essential to highlight that 24 analysts have revised EPS forecasts upward over the past 90 days, with only 2 lowering their expectations during this period.

In terms of revenue, the consensus stands at $141.4 billion, reflecting a 5.35% increase compared to the previous quarter and an 11.4% surge year-on-year.

Source: InvestingPro

However, it's important to remember that the results of the previous quarter strongly surprised on the upside, particularly in terms of EPS.

Source: InvestingPro

Earnings per share beat expectations by 89.5%, while revenues exceeded consensus by 2.3%.

On the other hand, it should be noted that Amazon shares have a mixed record in terms of exceeding expectations over the last 8 quarters.

Source: InvestingPro

Indeed, InvestingPro data shows that Amazon has exceeded expectations in only 4 of the last 8 quarters, for both EPS and sales.

Amazon Web Services Takes the Limelight/h2

The figures to be unveiled tonight for AWS are to be compared with last quarter's revenue of $22.1 billion, up 12% quarter-on-quarter.

While Amazon has recently invested in AWS and its AI capabilities, investors will want to see if the spending pays off and generates higher growth rates as a result.

The segment has seen a slowdown in growth since 2022, as e-commerce spending has weakened in an unfavorable macroeconomic environment, but a rebound is anticipated this quarter.

Indeed, Amazon introduced its generative AI application, called Bedrock, in response to Microsoft's ChatGPT and Google's Bard, which may have helped. Now, an improvement in AWS growth will be seen as a major positive for Amazon shareholders.

Fair Value Signals Upside Likely for Amazon Stock/h2

To prepare for the release of Amazon's results, it's also a good idea to find out what analysts are forecasting for the stock itself.

In this regard, note that the average target of the 50 professional analysts who follow AMZN stock is $171.50, which represents a potential upside of over 40% from the current price.

Source: InvestingPro

The InvestingPro fair value, which synthesizes 12 recognized financial models, is more conservative at $147.36 but still reflects a potential upside of over 20%.

On the other hand, the below-average InvestingPro financial health of Amazon stock suggests that these forecasts should be approached with a degree of caution.

Source: InvestingPro

Conclusion/h2

In a lively week for major technology stocks, Amazon's results due tonight, for which expectations are high, will be watched very closely, most notably for cloud services performance, which dictated market reaction for rivals Alphabet and Microsoft earlier this week.

While the stock has corrected in recent weeks, it retains a strong year-to-date uptrend, and analysts are very bullish on the stock, suggesting that any disappointment in tonight's results could have a clear bearish impact on Amazon's share price.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.