Amazon Falls on Mixed Earnings, But Analysts Stay Bullish Due to AI Spending and AWS Growth

Amazon (AMZN) shares declined by 3% to $231.80 in pre-market trading after the company released mixed first-quarter guidance and announced plans for significant spending on AI infrastructure.

Guidance Impact

Amazon forecast first-quarter revenue between $151 billion and $155 billion, below analyst expectations of $158 billion. The shortfall was attributed to a $2.1 billion hit from currency fluctuations.

Capex Spending

Similar to Microsoft and Meta, Amazon anticipates $104 billion in capital expenditures for the year, exceeding analyst estimates of $80-$85 billion. Analysts believe this aggressive spending will drive a re-acceleration in sales, particularly in AWS.

AWS Performance

AWS, Amazon's cloud business, delivered three consecutive quarters of 19% sales growth. Its operating profit margin also improved to 46.9%, compared to 29.6% a year ago. Analysts forecast continued growth in AWS amid Amazon's significant capex investment.

Other Highlights

* Second consecutive quarter of accelerated sales growth at Amazon's physical stores
* Highest quarterly operating income ever, at $21.2 billion

Analyst Outlook

Pivotal Research (Jeffrey Wlodarczak):
* Reiterated Buy rating and $260 price target
* Highlights AWS's growth potential, scale advantages, and margin expansion opportunities

DA Davidson (Gil Luria):
* Reiterated Buy rating, increased price target to $280 from $235
* Emphasizes AWS's strong adoption across services, including AI

JP Morgan (Doug Anmuth):
* Reiterated Overweight rating and $270 price target
* Views Amazon's GenAI investment as a major opportunity
* Expects infrastructure investment to support AWS's growth trajectory

Wedbush (Dan Ives):
* Reiterated Outperform rating and $280 price target
* Identifies AI contributions to AWS, automation, and Project Kuiper monetization as potential catalysts

Conclusion

Despite the mixed guidance, analysts remain bullish on Amazon due to its ongoing investments in AI, the strength of AWS, and the company's track record of success.