Amazon (AMZN) AWS Revenue and Cloud Leadership In Focus

Driven by the shift to higher-margin services combined with advancements in AI and AWS (which has been its revenue makers), market is expecting positive momentum to continue for Amazon in Q2.

Revenue for Q2 is expected to come in at $148.75 billion, adjusted net income to be $14.066 billion, and adjusted EPS to be $1.03.

I would think this earnings, market and investors would still be focusing on how AWS perform as this is the main revenue contributors for the growing AWS shown in recent quarters.

Amazon has shown the emphasis it place on AWS as it has helped to beat expectations on its earnings. So the focus would be on this AWS services.

Amazon has laid out plans to ramp up capital expenditures (CapEx) highlight the robust demand for generative AI within its cloud computing segment. In Q1 alone, Amazon spent $14 billion on CapEx, with total investments reaching $48.4 billion in 2023.

If we were to look at the leaders in the Cloud space, Amazon is leading but with Microsoft catching up, the key point of interest will be how AWS defends its market share against competitors like Microsoft’s Azure and Alphabet’s Google Cloud, both of which have been strong performers with proprietary models.

As we can see that Amazon has maintain a 31% lead in the cloud infrastructure service providers in Q1 2024, but in order to really take advantage to capture more of the AI demand.

I would be looking out for Amazon whether they have plan on how they are going to offer more services or partnership to do so. There have been a signal of cloud infrastructure spending to increase following the recent outage, as companies would be looking to build failover, and not a single point of failure.

This could benefit all cloud providers, but if you have been in the cloud infrastructure for long time, AWS have proven their capabilities in offering the site resiliency, and now they are able to be used for multi-cloud failover.

This is even more important when AI is in play, because no one would want their AI services to suddenly stop working for their consumers. So the cloud provider capabilities and proven strength to offer that would be important to consider.

In Q4 2023, the top three cloud service providers accounted for 66% of the total cloud spending, I expect this numbers to go up higher as more and more organization are deploying AI, and now AI have been proven to be able to run on cloud workload.

Based on 39 Wall Street analysts offering 12 month price targets for Amazon in the last 3 months. The average price target is $225.65 with a high forecast of $250.00 and a low forecast of $200.00. The average price target represents a 20.68% change from the last price of $186.98.

I am expecting Amazon to be above $200 because if you were to look at the past performance and the business revenues it is bringing in, it is undervalued.

If we were to look at the potential on Amazon, it has been pretty impressive, the year-to-date return to investors on its stock price have been more than 20%.

With the cloud spending expected to grow, and Amazon being the leader, a lot of companies have been deploying AWS because it has been around for longer time and proven to run critical workload.

With the recent outage, this would make CIO who has shifted out of AWS due to costs, to rethink their strategy.

If we looked at the technical, Amazon have give a clear bullish signal from the KDJ, and with the MACD making a potential bullish crossover, I would be expecting Amazon to be trading towards the $200 today (01 August).

But that should not be the only level, I would think Amazon could maintain above the $200 after this second quarter earnings, as we should be seeing more customers switching over from Microsoft Azure.

Amazon Sage have matured and would be able to help organization who is starting their Ai journey and those who already are into the inference phase.

So AWS can really take advantage of the AI demand, the only focus I would be doing is whether the return on investment by Amazon over the last few quarter would get a good payoff this time.

Appreciate if you could share your thoughts in the comment section whether you think Amazon would make an exceptionally earnings beat?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.