Amazon Q3 earnings updates: Analysts expect answers on AI progress and AWS as AMZN lags other Mag 7 stocks

Amazon’s Prime Day event in October has become an early chance for shoppers to score holiday deals, and other retailers have even debuted their own versions. On Thursday’s call, Amazon could provide an early glimpse into how holiday shopping is shaping up.

Expect Amazon to play a big role once the holiday shopping season starts in earnest. About 73% of shoppers surveyed by marketing platform Omnisend said that Amazon is their go-to source for deals on Black Friday and Cyber Monday.

Amazon’s ad business has been finding potential growth opportunities lately.

A recent deal with Netflix will let brands buy ad slots on the streamer through Amazon’s own demand-side platform. The move rattled shares of adtech rival The Trade Desk after it was announced.

Amazon is expected to give a capital expenditures update on its earnings call this afternoon. Last quarter, Amazon’s capex totaled $31.4 billion, and the company said the figure was “reasonably representative” of its quarterly capex rate for the rest of the year. It’s largely driven by investments in AWS — particularly AI and tech infrastructure — and Amazon’s fulfillment and transportation network.

Capex growth is a hot-button issue across Big Tech. The following chart shows how spending stacks up so far.

Investors will be listening for any details that CEO Andy Jassy and the company offer about Amazon’s grocery business in light of a recent reboot.

In June, a memo obtained by Business Insider showed that Whole Foods, Amazon Fresh, and Amazon Go were being united under a single “One Grocery” operation eight years after Amazon acquired Whole Foods for $13.7 billion.

The company launched a $5 private-label grocery line earlier this month aimed at luring value hunters away from Walmart and Aldi.

Wedbush has high hopes for the tech giant heading into the call, maintaining a $280 price target, up from its previous target of $250 a share.

The firm’s analysts predict that it is poised for a breakout in 2026 and likely to shake off the volatility that has weighed on the stock recently. They expect Amazon to reach $99.6 billion in full-year revenue, and predict Q3 revenue of $20.1 billion.

“Heading into the print, we are most focused on AWS momentum and emerging AI monetization, rising operating margins supported by the mix shift to higher-margin revenue, capex requirements to support infrastructure and AI investments, and persistent growth within the advertising business,” Wedbush analysts wrote in a preview note.

They also cited several immediate-term catalysts, including savings from automation and robotics progress, and the commercialization of Alexa’s new AI capabilities.

Business Insider’s Chief Tech Correspondent Eugene Kim and Chief Correspondent Aki Ito will join Deputy Executive Editor Dan DeFrancesco to talk about Amazon’s decision this week to lay off 14,000 employees in a livestream at 2 p.m. ET. AI’s role in the layoffs will be a key topic.

Got a question that you want the panel to answer? Send it to moderator Dan DeFrancesco.

Amazon said on Tuesday that it would cut 14,000 corporate jobs in one of the biggest rounds of layoffs in the company’s history.

It raised a big question for Wall Street: Is the company cutting jobs because growth is stalling, or is the retail giant’s big bet on AI making it more efficient? Business Insider’s Alistair Barr wrote in Thursday’s Tech Memo newsletter that Amazon’s latest quarterly earnings report could answer that all-important question.

Revenue growth for Amazon Web Services, the company’s crucial cloud business, is the number to watch when Amazon reports this afternoon, Barr wrote.

For the third quarter, Wall Street expects AWS revenue to increase 18% year over year to $32.4 billion, according to Bloomberg.

UBS analysts are feeling optimistic heading into the report, although they anticipate some “noise” around operating income due to the company’s recent $2.5 billion settlement with the FTC.

The bank recently raised its price target for Amazon stock from $271 to $279, maintaining its Buy rating. While analysts said that they are waiting to see investment proof points from AWS, they still see the area as a likely growth driver for Amazon, as they expect multiple headwinds to wane in the near future.

“Overall, we continue to see the potential for upside across Amazon’s business segments, including e-commerce, cloud, advertising, and Kuiper / low earth orbit satellites,” analysts wrote in a recent earnings preview.

Investors will want to hear more about AWS’s latest AI strategy, including what it’s doing to attract new customers.

Early-stage startups are skipping traditional cloud spending and heading straight to model-training tools and niche providers. These companies are Amazon’s “blind spot,” according to an internal document seen by Business Insider. Amazon has traditionally relied on venture capital firms to find startups that could be new clients.

AWS also hired a new vice president of security services and observability this month, a sign that the unit is trying to improve security around its AI products.

JPMorgan analysts said that while they believe Amazon has done a good job executing on retail sales and margin expansion, they’re worried about its positioning in the booming generative AI space.

“There is concern around AMZN’s GenAI positioning/strategy, relative gap to Azure/Google Cloud growth, & trajectory of 2H AWS growth pick-up,” they said. “There is also concern around the impact of tariffs & changes to the de minimis exemption on demand & OI margins.”

However, the analysts add that AWS growth acceleration will likely continue, and said that they expect AI supply chain gaps to ease, which they see as bullish for Amazon.

JPMorgan maintains an overweight rating and a $265 price target for Amazon stock.

Amazon ranks last among the Magnificent Seven tech companies — and the broader S&P 500 — when it comes to stock performance over the last five years, Business Insider’s Joe Ciolli wrote in Thursday’s First Trade newsletter.

Amazon’s stock has returned 43% over that period, behind Meta’s 168%, Alphabet’s 253%, and Nvidia’s mammoth 1,490%.

On Wall Street, some interpret Amazon’s position on that chart as a sign that its AI strategy is struggling to compete with rivals.

BofA analysts are upbeat heading into the report, even as doubts swirl around Amazon’s AI strategy.

“Given healthy retail sales, strength in Online advertising, and July AWS layoffs, we see potential for operating income upside and are 4% above Street for GAAP operating profit at $20.4bn vs $19.7bn,” the analysts wrote.

“We believe Street expectations are for around 1-2% beat on US retail, AWS growth at 18-18.5% based on 3P data, and op. profit slightly above the high end of Amazon’s 3Q guidance range.”

The bank maintains a Buy rating on Amazon stock and a $272 price target, implying 21% upside from Wednesday’s price.

Third Quarter

• Net sales estimate $177.82 billion
• Online stores net sales estimate $66.93 billion
• Physical Stores net sales estimate $5.56 billion
• Third-Party Seller Services net sales estimate $42.05 billion
• Subscription Services net sales estimate $12.49 billion
• Amazon Web Services net sales estimate $32.39 billion
• North America net sales estimate $104.96 billion
• International net sales estimate $40.77 billion
• Third-party seller services net sales excluding F/X estimate
  +10.8%
• Subscription services net sales excluding F/X estimate +10.7%
• Amazon Web Services net sales excluding F/X estimate +17.9%
• EPS estimate $1.58
• Operating income estimate $19.72 billion
• Operating margin estimate 11.1%
• North America operating margin estimate +6.98%
• International operating margin estimate 4.02%
• Fulfillment expense estimate $27.49 billion
• Seller unit mix estimate 60.7%

Fourth Quarter

• Net sales estimate $208.45 billion
• Operating income estimate $23.78 billion
• Capital expenditure estimate $32.33 billion

Year

• Capital expenditure estimate $118.76 billion

Source: Bloomberg