Amazon.com Inc. (NASDAQ:AMZN) is set to release its quarterly earnings after the market closes on Tuesday, continuing the recent sequence of Big Tech earnings that have impressed Wall Street, despite concerns over substantial AI expenditures.
The company is anticipated to provide updates on its AI development, the performance of its profitable cloud business, and growth in its advertising segment.
Strategic Investments and Market Competition Define Amazon’s Quarter
Amazon’s upcoming report follows a robust quarter from its cloud rival and AI competitor Microsoft Corporation (NASDAQ:MSFT), which exceeded expectations largely due to its strong cloud computing segment. Similarly, Alphabet Inc. (NASDAQ:GOOGL) recently reported excellent results, surpassing top and bottom line estimates and announcing a new dividend, signaling a growing trend among tech giants.
For Amazon’s fiscal fourth quarter, Wall Street anticipates significant figures including expected revenue of $142.6 billion, up from $127.4 billion in the first quarter of 2023, and adjusted earnings per share expected at $0.82, up from $0.31.
Breakdowns in key segments are also projected with online stores expected to bring in $54.8 billion, Amazon Web Services (AWS) forecasted at $24.1 billion, and advertising revenues anticipated to reach $11.8 billion.
Navigating Challenges and Harnessing Opportunities Amidst Intense Market Competition
Amazon’s CEO Andy Jassy highlighted in a recent letter to shareholders the transformative potential of generative AI, likening it to the impact of the cloud and the internet.
As a leader in AI, Amazon is aggressively competing to secure market share and introduce new consumer services. This includes a significant increase in investment in AI startup Anthropic, with an additional $2.75 billion bringing Amazon’s total investment to $4 billion.
Leveraging its dominant position in cloud computing, Amazon utilizes its infrastructure to advance in the AI space, a sector demanding vast data and processing power. Its partnership with Anthropic underscores the strategic use of Amazon’s cloud services to strengthen its position in the AI market.
Despite its pioneering efforts in AI, Amazon has faced challenges, including a slowdown in AWS, prompting the company to cut hundreds of jobs in its most profitable segment. Additionally, Amazon has faced setbacks such as discontinuing its cashier-less checkout systems at Amazon Fresh supermarkets in the US and increasing competition from e-commerce companies like Temu and Shein.
However, Amazon’s advertising business, holding nearly 15% market share, remains a bright spot, ranking third behind digital ad leaders Google and Meta Platforms Inc. (NASDAQ:META). The company’s Prime Video ads business, introduced in an ad-supported plan earlier this year, is seen as having substantial growth potential due to Amazon’s vast resources, extensive consumer data, and Prime Video’s wide reach.
As Amazon prepares to announce its earnings, the broader market awaits the conclusion of the Federal Reserve’s May policy meeting, with expectations that interest rates will remain steady. Any new indications regarding future rate adjustments could significantly influence Amazon and other major tech stocks that have been driving the recent equity rally.
Since joining the Dow Jones Industrial Average in February, Amazon’s stock has risen about 20% for the year, reflecting investor optimism and the company’s strategic positioning in both AI and cloud computing sectors.
