Amazon reports first-quarter earnings on Wednesday with more signs than ever that its cloud business is in demand, including a $244 billion revenue backlog, blockbuster deals with Meta, OpenAI and Anthropic, and a custom chip business that has doubled in months.
The problem: a $200 billion spending plan, largely dedicated to new AI infrastructure, that wiped out Amazon’s free cash flow and sank its stock 10% last quarter.
Here’s a preview of the key numbers and storylines to watch.
Key expectations: Wall Street expects Amazon to report about $177 billion in first-quarter revenue, up about 14% from a year ago, for earnings of $1.65 per share. That’s up just 4%, reflecting rising depreciation costs from building the company’s infrastructure.
Amazon’s guidance for first-quarter operating income is from $16.5 billion to $21.5 billion — a $5 billion spread that reflects uncertainty about tax impacts on its retail business and $1 billion in new costs for its satellite Internet project, Amazon Leo.
AWS Growth: But the main event is Amazon Web Services, where analysts expect revenue of about 36.8 billion, which is up about 26% from last year. AWS growth has been accelerating for three straight quarters (from 17% to 20% to 24%) and investors are looking for that to continue.
In a fourth-quarter earnings call, CEO Andy Jassy described the AI market as a “barbell” — with AI research labs spending heavily on one side, and businesses doing routine tasks on the other. The biggest opportunity, he said, is in the middle: the bulk of business manufacturing jobs that haven’t migrated to AI, for the most part.
“The lion’s share of that demand is yet to come,” said Jassy.
The question is whether that center is starting to fill up, or if AWS’s growth is still primarily driven by big AI lab deals.
Beyond the cloud: It’s easy to forget about the AI frenzy, but Amazon is also the country’s largest retailer, and the first quarter brings its own set of pressures. Jassy warned earlier this year that import costs are beginning to be reflected in product prices, and the company is facing increasing competition from Walmart, Temu, and Shein for cost-conscious shoppers.
Online retail sales grew 10% to $83 billion in the holiday quarter, while third-party merchant services brought in $52.8 billion. But costs are also rising: Amazon spent $31.5 billion on shipping in Q4, up 10% from a year ago.
At the same time, the company has been cutting costs aggressively, cutting about 16,000 corporate jobs in January in what Jassy described as a campaign to fight bureaucracy, followed by further cuts to its robotics division in March.
Advertising remains the highlight, growing 23% to $21.3 billion in the fourth quarter and emerging alongside AWS as one of Amazon’s main engines.
Amazon won’t be the only tech giant reporting on Wednesday. Microsoft, Alphabet, and Meta are all scheduled to release quarterly results on the same day, giving investors an opportunity to compare notes on AI adoption and cloud growth across the industry.
Google Cloud has been growing faster than AWS in percentage terms, adding another dimension to the debate about which company is best positioned to capitalize on the AI boom.
Check back Wednesday afternoon for more information.
