Amazon earnings primer: Why AI and tariffs are key to the second quarter

Amazon is poised to report Q2 results, with LSEG analysts projecting $1.33 EPS and $162.1 billion revenue, including $30.8 billion for AWS. While initial concerns revolved around tariffs and recessionary fears, analysts are now more optimistic, noting a supportive US consumer and reduced competition from Chinese e-tailers due to tariff impacts. Investors will keenly watch AWS growth, which saw a Q1 slowdown to 17%, and any reaffirmation or increase in the $100 billion AI investment pledge, especially as Amazon's stock has lagged major tech peers despite its aggressive AI strategy.

Analysis

Ahead of its second-quarter earnings release, Amazon faces a complex but cautiously optimistic outlook from Wall Street, with consensus estimates at $1.33 EPS on $162.1 billion in revenue. Initial investor concerns regarding tariffs and recessionary fears, articulated by the company in May, have largely subsided. Analysts now posit that the tariff environment has become a net positive, diminishing competition from Chinese e-commerce platforms like Shein and Temu (PDD Holdings) and strengthening Amazon's market share, with the core online stores unit projected to hit $58.98 billion in sales. The primary focus for investors, however, will be the performance and outlook for Amazon Web Services (AWS). After growth decelerated to 17% in the first quarter—a one-year low attributed by CEO Andy Jassy to AI chip capacity constraints—analysts anticipate a similar growth rate for Q2. Consequently, management's commentary on its pledged $100 billion in AI-related capital expenditure will be heavily scrutinized, especially after competitor Google recently increased its own spending. Despite strategic AI initiatives, including an upgraded Alexa and plans to reduce its corporate workforce via AI adoption, Amazon's stock has notably underperformed its large-cap tech peers this year, rising only 5.4% YTD compared to approximately 20% for Meta and Microsoft, amplifying pressure on this report and the Q3 guidance (projected at $173.3 billion) to serve as a catalyst.

Key Decisions for Investors

• Investors should scrutinize the Amazon Web Services (AWS) revenue growth rate; a figure at or below the prior quarter's 17% could signal persistent capacity constraints or slowing demand, potentially weighing on sentiment.
• Pay close attention to Q3 revenue guidance, with the $173.3 billion analyst projection serving as a key benchmark, and listen for management's updated commentary on the net impact of tariffs on both costs and competitive positioning.
• Evaluate any updates to the company's $100 billion capital expenditure plan, as a reaffirmation or increase would signal continued aggressive investment in AI to compete with rivals like Google and could be a long-term positive catalyst despite near-term costs.
• Given Amazon's stock has underperformed key tech peers year-to-date, a strong earnings beat and positive outlook could position it for a catch-up trade, while a miss on key metrics could exacerbate this performance lag.