Amazon Q2 Earnings Preview: All Eyes on AWS, AI, and Tariff Pressures

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Amazon is set to report second-quarter 2025 earnings Thursday after the close, with Wall Street expecting another pivotal update on the company’s performance across retail, advertising, and cloud. Analysts anticipate strong revenue growth fueled by e-commerce resilience, steady AWS demand, and expanding advertising momentum, though margin pressures from tariffs and AI-related capital spending loom as potential headwinds. With Amazon shares up more than 20% since early May but still trading at a mid-pack valuation among the Magnificent Seven, investors are looking for clarity on how management plans to balance heavy investment in artificial intelligence infrastructure with sustained profitability.

Expectations for Q2 call for revenue of $162.28 billion, representing a 9.7% increase year-over-year, within Amazon’s guidance of $159–$164 billion. Consensus EPS sits at $1.33, up 8% from last year, with a track record of the company topping estimates—Amazon has exceeded Zacks EPS consensus in each of the last 10 quarters, often by double-digit percentages. Analysts project AWS revenue near $30.7 billion, reflecting roughly 17% year-over-year growth, while the advertising business is expected to rise 19% over the same period. On retail, consensus models call for North America revenue growth of about 8%, with some banks, such as Bank of America, seeing evidence of upside closer to 10% given strong credit card spending and the benefit of a weaker dollar internationally.

The North America segment remains a focal point. Operating margins in the region have rebounded significantly from a low 1.1% in early 2024 to nearly 6% this quarter, though analysts debate whether tariffs could eat into this momentum. Visible Alpha shows estimates ranging widely between 4.5% and 7.7%. Internationally, margins are expected to improve to about 1.5% thanks to FX tailwinds, though estimates range from negative 4.4% to nearly 6%, underscoring the uncertainty tariffs and currency moves bring. Management’s commentary around the back-to-school and holiday outlook will be critical for investors looking to gauge retail’s trajectory into the second half of the year.

On AWS, growth expectations remain high, but margins could see pressure. Last quarter, AWS posted a 39% operating margin, and consensus expects a dip to 35% for Q2 as Amazon ramps AI-related infrastructure spending. Forecasts range widely, from 28% to 39%, reflecting debate about how much incremental capex is hitting the P&L. Analysts are keenly watching whether Amazon raises its capex outlook to match rivals like Alphabet, which recently lifted its forecast to $85 billion. UBS now expects Amazon to spend $112 billion in 2025, up from $107 billion, with AI infrastructure the main driver. Morgan Stanley also sees Amazon as likely to hike capex in the coming quarters as part of the escalating AI arms race.

AI is central to the investment narrative. Amazon recently acquired Bee, a personal AI startup, to bolster its efforts in consumer-facing agentic AI. On the enterprise side, AWS continues to lean on custom silicon like Trainium chips, and engineers have unveiled new cooling technology to support Nvidia’s massive AI systems. Analysts at BMO argue these agentic capabilities are underappreciated and could unlock meaningful efficiencies for customers. Citi and Wedbush both flag AWS’s AI build-out as a potential catalyst for accelerating growth in the second half of 2025. Still, Scotia notes some investors worry AWS has been slower to produce marquee AI models compared with Google and Microsoft, a perception that could weigh if Amazon doesn’t highlight meaningful progress.

Advertising remains another key growth driver. Consensus models call for 19% year-over-year growth, driven by sponsored products and Amazon’s push into streaming video ads. BAML and Citizens expect this segment to remain a bright spot, supported by Amazon’s massive consumer dataset and growing connected TV footprint. The advertising business is on track for a $70 billion annual run rate, according to management’s last disclosure, making it one of the fastest-growing pieces of the Amazon portfolio.

Retail, meanwhile, will get an extra boost from Prime Day, which spanned four days this year. Early reports conflicted, with some channel checks suggesting softer performance, while others later confirmed record sales. Citi and BMO both believe the event ultimately provided a tailwind, with Citi highlighting strong sequential retail trends into back-to-school. However, some skeptics, including technical analysts, argue that the Prime Day hype may be overstated and that falling average selling prices could offset volume gains.

Tariffs remain a wildcard. Management previously estimated a $900 million cost impact in Q2 tied to reciprocal tariffs. While this may be manageable relative to Amazon’s massive scale, the uncertainty around future trade actions continues to cloud visibility. With North America generating roughly 60% of Amazon’s revenue and a third of EBIT, pricing strategies and consumer demand will be closely scrutinized. Analysts note the company’s global sourcing model makes it particularly vulnerable to new rounds of tariff escalation.

Beyond core operations, Amazon continues to invest heavily in long-term initiatives. Project Kuiper, the company’s satellite broadband effort, is moving ahead with BAML estimating total build-out costs of $23 billion and potential consumer revenue of $7 billion annually by 2032. Robotics, same-day delivery, and new fulfillment efficiencies also remain strategic levers, with management pointing to improved transportation and inventory placement as drivers of recent margin gains.

Investor sentiment heading into earnings is broadly bullish. UBS, BAML, Citi, and Citizens have all raised price targets in recent weeks, with some pushing into the $270–$285 range. Morgan Stanley has a bull-case PT of $350, citing AI-driven AWS acceleration and a more favorable tariff backdrop. Still, caution lingers: Scotia highlights margin risks at AWS, while some independent analysts warn of potential free cash flow erosion if capex ramps too aggressively.

Ultimately, Thursday’s report will be judged on three axes: AWS growth and margin sustainability, retail resilience amid tariffs, and how convincingly management outlines its AI and capex roadmap. With shares up strongly in recent months, expectations are elevated, and any disappointment—particularly on margins or guidance—could weigh heavily. Conversely, a clean beat with a strong AI narrative could reinforce Amazon’s position as one of Wall Street’s top tech picks for the second half of 2025.

Do you want me to also build a table of key consensus expectations (Revenue, EPS, AWS, Advertising, Retail margins) so it’s easy for readers to benchmark results once AMZN reports?