Should You Buy Amazon Stock Before Oct. 30?

Amazon's stock has underperformed the S&P 500 year-to-date, with market concerns including tariff impacts and AWS growth ahead of its Q3 earnings report. In Q2, e-commerce sales grew 11% year-over-year, driven by significant efficiency improvements in logistics, while AWS grew 17.5% year-over-year and is aggressively investing in its $123 billion annualized generative AI business. Management projects Q3 sales between $174 billion and $179.5 billion, with operating income of $15.5 billion to $20.5 billion, and market sentiment will hinge on strong guidance and updates on AI progress, despite the stock currently trading at a discount to historical averages.

Analysis

Amazon (AMZN) shares have significantly underperformed year-to-date, remaining roughly flat against the S&P 500's 14% gain, primarily due to market concerns regarding potential tariff impacts and a perceived slowdown in Amazon Web Services (AWS) growth. The upcoming Q3 earnings report on October 30th is crucial for providing clarity on these issues and shaping investor sentiment.

The e-commerce segment, which constitutes two-thirds of total sales, demonstrated robust 11% year-over-year growth in Q2 for both online stores and third-party sales. This growth was underpinned by substantial logistics efficiencies, including expanding same-day/next-day delivery to 4,000 regions, a 40% increase in direct fulfillment, and reductions in distance traveled (12%) and handling touches (15%), which CEO Jassy expects to positively impact Q3 margins.

AWS, despite its 17.5% year-over-year growth in Q2, faces competitive growth comparisons but maintains its market-leading position. The segment is central to Amazon's generative AI strategy, boasting a $123 billion annualized run rate, with management committing significant capital investment in chips, data centers, and power to capitalize on this opportunity.

Management's Q3 guidance projects sales between $174 billion and $179.5 billion (10-13% YoY increase) and operating income of $15.5 billion to $20.5 billion. While Wall Street anticipates $1.56 EPS and $177.7 billion revenue, market reaction will heavily depend on achieving the high end of guidance and positive updates on AI progress, with the stock currently trading at 29x forward one-year earnings, a discount to historical averages.

Key Decisions for Investors

• Investors should closely monitor Amazon's Q3 earnings report for clarity on tariff impacts and the trajectory of AWS's generative AI investments, which are key to future growth.
• Evaluate the reported e-commerce segment's margin improvements stemming from logistics efficiencies and the specific capital allocation towards AI infrastructure.
• Given the stock's current trading multiple of 29x forward earnings, which is a discount to historical averages, consider this an attractive entry point for long-term positions, especially if guidance is strong.