Preview of Financial Report | Amazon.com, Inc. (AMZN.US) "AI laggard" label to be torn, advertising business may become a dark horse.

Amazon.com, Inc. (AMZN.US) will announce its third-quarter performance after the US stock market closes on October 30 (early morning on October 31, Beijing time). Market expectations are that the company's Q3 revenue will reach $177.8 billion, adjusted earnings per share at $1.98, operating profit at $19.8 billion, and a gross margin reaching 50%. Performance Review Amazon.com, Inc. had an outstanding performance in the second quarter: total revenue reached $167.7 billion, exceeding market expectations of $162.09 billion. Earnings per share were $1.68, higher than the forecast of $1.33 per share. Looking at the breakdown, e-commerce sales still accounted for two-thirds of its total sales, with revenue in the second quarter surpassing $100 billion. Both online stores and third-party seller sales saw an 11% growth in the second quarter. According to management, Amazon.com, Inc. has expanded its same-day or next-day delivery service to 4,000 small areas; the company added several brand partnerships, including Origins cosmetics from Estee Lauder Companies Inc. Class A (EL.US) and dedicated NIKE, Inc. Class B (NKE.US) brand stores; Amazon.com, Inc. continues to optimize regional distribution center stocking channels, with a 40% year-over-year increase in orders from fulfillment center to direct delivery, a 12% reduction in average parcel transport distance, and a nearly 15% reduction in unit parcel processing steps. CEO Andy Jassy stated that these measures are improving the efficiency of the distribution system, but he also acknowledges the uncertainty that tariff policies may bring. Amazon.com, Inc.'s cloud service (AWS) revenue grew by 17.5% to $30.9 billion, while advertising business saw a 23% growth to $15.69 billion. However, due to the slower growth in cloud services compared to its competitors, the company has been labeled as a "laggard" in the AI field, and the revenue guidance for the third quarter falling below market expectations has disappointed investors who were expecting quick returns from the company's large-scale AI investments, resulting in an 8.27% decline in the stock price the day after the financial report was released. Many investors believe that in order to change this perception, AWS needs to show a growth rate returning to 20%. However, AWS remains the absolute leader in the cloud computing infrastructure market, as recent AWS service interruption events have shown the high dependence of the internet on its services. Amazon.com, Inc. continues to increase its investment in data center construction, especially in its AI computing project, the "Rainier project," which the company says will be launched in the second half of 2025. Jassy stated that the company will continue to invest in chips, data centers, and the power sector, believing that generative AI holds unprecedented opportunities. "We are continuously optimizing customer experience, accelerating innovation, improving operational efficiency, and driving business growth in the field of AI," he added. CFO Brian Olsavsky stated at the earnings conference that capital expenditures in the second quarter reached $31.4 billion, mainly invested in AWS infrastructure and AI-related fields. He revealed that this spending level "essentially reflects" the investment pace for the third and fourth quarters, combined with a $24.3 billion capital expenditure in the first quarter, the expected full-year capital expenditure for 2025 is projected to reach $118 billion. Performance Outlook Similar to the second quarter, investors will continue to focus on AWS business. Analysts predict that the cloud business division's revenue for the third quarter will reach $32.4 billion, with operating profit of $11.1 billion. Additionally, the impact of the major AWS service interruption event in October will also be closely scrutinized. In the previous quarter, AWS had a profit margin of 32.9%, expected to rise to 34.2% in the third quarter, but this level is still lower than the earlier level exceeding 35%. S&P Global, Inc. pointed out that before the financial report was released, analysts had a significant difference in the estimated range for AWS profit margin in the third quarter, ranging from 30.7% to 38.1%. Equally important is the progress of Amazon.com, Inc. in building and operating AI-related businesses. As mentioned earlier, there are concerns in the market that the company's momentum in competing with Alphabet Inc. Class C (GOOGL.US), Microsoft Corporation (MSFT.US), Oracle Corporation (ORCL.US), Coreweave (CRWV.US), and Nebius (NBIS.US) has weakened. S&P Global, Inc. stated that the market is closely monitoring Amazon.com, Inc.'s investment trends in the AI field, as the company's capital expenditure numbers for the 2026 fiscal year continue to rise. Wall Street generally looks favorably on the future of Amazon.com, Inc.'s cloud business. Wedbush stated that the potential demand level for AWS is encouraging based on the growth of AWS orders and the higher capital expenditure guidance for 2025. Analyst Scott Devitt and his team believe that the risk-reward ratio of the company's stock is attractive. Devitt wrote in a report, "Given the positive commentary on AWS growth, good trends in core retail business, and strong advertising customer demand, we have a positive view on the overall situation before this financial report is released." It is worth noting that the market generally expects Amazon.com, Inc.'s operating profit in the third quarter to exceed expectations. The company has been rated as "outperforming" by Amazon.com, Inc., with a target price of $280. Analysts from Bank of America Corp stated that investor sentiment towards AWS is still cautious at present, but this sentiment is expected to improve as we progress into 2026. "We expect (management) to release positive signals on AWS growth for 2026," they wrote, listing many positive factors such as capacity improvements in the Rainier project, faster growth in backlog orders, and the potential for Amazon.com, Inc. to highlight its new AI-related infrastructure at the re:Invent conference in December. KeyBanc analyst Justin Patterson also believes that investors are overly pessimistic about Amazon.com, Inc.'s cloud business, making the stock a highly attractive buying opportunity. As a reference, Amazon.com, Inc.'s stock price has only risen by 2.20% since the beginning of the year, making it the weakest performer among the "big seven" US stocks. The analyst expects that cloud business growth will continue to improve until 2026. Additionally, Patterson believes that Amazon.com, Inc.'s advertising business is driving retail profit growth, and the fresh grocery business may become increasingly important in the coming years. He also pointed out that Amazon.com, Inc.'s current stock valuation is significantly lower than its historical average. UBS Group AG analyst Karl Keirstead stated that the market's baseline expectation for AWS growth in this quarter is around 18%. He is cautious about a short-term growth rebound and predicts that the growth rate will likely remain at 17% in the third quarter. However, he believes that with the improvement of cloud computing capacity, performance is more likely to break through in the fourth quarter or the first half of 2026. Aside from the cloud business, Amazon.com, Inc. has other positive catalysts. Last Tuesday, Amazon.com, Inc. announced plans to replace 600,000 positions with Siasun Robot & Automation by 2033 to reduce operating costs, which directly boosted the stock price. Benchmark analyst Daniel Kurnos believes that this reform will improve long-term operating profit margins. Morgan Stanley is also looking at the potential cost savings of several billion dollars in the coming years from Amazon.com, Inc.'s new generation Siasun Robot & Automation warehouse. Analyst Brian Nowak recently stated, "We have always believed that the market has not fully recognized Amazon.com, Inc.'s progress in the retail business in generative AI, where the efficiency improvements driven by Siasun Robot & Automation technology are at the forefront." Morgan Stanley has given Amazon.com, Inc. a "buy" rating with a target price of $300. Additionally, the advertising business may also bring surprises. Benchmark's Kurnos pointed out that the growth potential and profit margin level of this business are likely to surpass AWS. "We have always believed that Amazon.com, Inc.'s advertising and Prime Video ecosystem will ultimately release huge value, with highly impressive profit margins after scalability." Leveraging its vast retail ecosystem, Amazon.com, Inc.'s advertising business builds unique advantages in deep integration with small and medium-sized merchants on the platform. Benchmark research data shows positive progress in this business. "We are convinced that Amazon.com, Inc. will eventually emerge as a market winner," Kurnos concluded.