After lagging the 'Magnificent Seven' all year, Amazon has an opportunity to prove to investors that its investments in AWS and AI are finally paying off.
Amazon.com Inc.'s earnings report on Thursday could be the catalyst the stock needs to shake off its reputation as an artificial-intelligence laggard.
Shares of Amazon are up 4% this year, the worst performer among the "Magnificent Seven" tech stocks. Investors have remained unconvinced thus far that the company can meaningfully reaccelerate its Amazon Web Services growth after AWS growth in the June quarter came in at 17.5%.
However, analysts are doubling down on their bullish stance on the stock going into Thursday's earnings announcement. On Tuesday, UBS analyst Stephen Ju raised his price target to $279 from $271 and reiterated his buy rating.
Many of the benefits of Amazon's capital expenditures in AWS, e-commerce, advertising and its satellite initiative Project Kuiper haven't yet been realized, Ju wrote in a Tuesday note, calling the stock "a coiled spring."
Analysts polled by FactSet anticipate $177.9 billion in revenue and earnings of $1.57 per share for the third quarter.
The earnings report follows a flurry of corporate news from Amazon, including a recent AWS outage and the company's announcement this week that it would cut 14,000 corporate jobs.
But most importantly, the Thursday earnings call will shed light on the performance of Amazon's cloud-computing business. Bernstein analyst Mark Shmulik wrote in a note last week that he expects a "strong visible acceleration for AWS" by the end of the year. AWS could reach over 20% growth by early 2026, Shmulik added.
The third quarter could be an opportunity for Amazon's AI revenue to show up more meaningfully, leading to higher estimates for operating profit and free cash flow, Ju wrote.
Amazon should be aided by its data-center initiative Project Rainier coming online in the second half of 2025, alleviating capacity concerns. Cloud companies in general have been struggling to meet robust AI demand because they don't have enough capacity.
The earnings call will also offer Amazon an opportunity to address the recent news of Alphabet Inc.'s agreement to provide Anthropic with access to its custom tensor processing units. Amazon is Anthropic's primary cloud provider, and the deal has led to speculation about the status of the relationship between the two companies.
According to FactSet consensus, analysts expect AWS to post 18.1% growth for the third quarter.
Although investors will be primarily focused on the AWS segment, other parts of Amazon's business have potential for upside as well.
Amazon's high-margin advertising business has been growing at a rapid clip. UBS's industry checks suggest that companies are increasing their advertising budgets for Amazon, and Ju sees opportunity for ad expectations to rise in the second half of 2025.
The company's e-commerce business is also improving its economics and margins. Enhancements in delivery and fulfillment logistics have helped Amazon's same-day grocery delivery offerings, and the company has announced plans to provide the service to over 4,000 smaller cities and towns in the U.S. by the end of the year.
Additionally, consumer spending has been fairly resilient in the face of tariff headlines, which is a positive signal for Amazon, according to Melissa Otto, head of research at S&P Global Visible Alpha.
"The way the company guides and what color they give around holiday spending will be very important," Otto told MarketWatch.
Ju anticipates "some noise" in the third-quarter results due to Amazon's recent $2.5 billion settlement with the Federal Trade Commission over its Prime subscription practices. The settlement could also result in lower-than-expected guidance for operating income in the fourth quarter.