AMZN Preview: AWS, AI, and Retail in Focus

Amazon (NASDAQ: AMZN) is set to report its fourth-quarter earnings after the market closes on February 6, 2025, with analysts closely watching key metrics such as revenue, operating income, and Amazon Web Services (AWS) performance. Wall Street expects EPS of $1.49 and revenue of $187.3 billion, marking a 10.1% year-over-year increase. The company had previously guided revenue between $181.5 billion and $188.5 billion and projected operating income in the range of $16 billion to $20 billion. With Amazon shares trading near record highs and a strong holiday season under its belt, expectations are elevated, though concerns about cloud growth, capital expenditures, and logistics spending persist.

Retail and Logistics in Focus

Amazon's core retail business likely benefited from robust e-commerce demand during the holiday season. Analysts believe Amazon gained share in Q4, supported by strong holiday sales, effective inventory management, and improved shipping efficiency. Data from credit and debit card transactions indicated steady online spending growth, reinforcing expectations of solid retail revenue. Analysts estimate North America retail sales growth at 8% year-over-year, slightly below Q3's pace but still strong. However, a key logistical challenge looms: UPS (NYSE: UPS) plans to cut its business with Amazon due to thin margins, raising questions about Amazon’s ability to absorb this volume in-house without driving up costs.

AWS: Can It Buck the Cloud Slowdown?

Amazon Web Services (AWS) remains the company’s most profitable segment, contributing nearly half of its operating income. Analysts expect AWS revenue to rise 19%-20% to approximately $28.8 billion in Q4. However, recent underwhelming cloud results from Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) have fueled concerns that AWS growth may also disappoint. Azure and Google Cloud posted lower-than-expected growth rates, citing capacity constraints and shifting AI-related demand. If AWS falls below expectations, investor sentiment could turn bearish despite Amazon’s strong retail performance. Management’s guidance for AWS in Q1 and beyond will be a crucial determinant of post-earnings stock reaction.

AI and Alexa Developments

Amazon continues to invest heavily in AI, particularly within AWS. The company has ramped up spending on AI infrastructure, positioning itself to capitalize on increasing demand for AI-powered cloud solutions. Notably, Amazon has scheduled a February press event to unveil a major generative AI revamp for Alexa. Reports suggest Amazon may introduce a paid subscription model for Alexa AI, priced between $5 and $10 per month. This move could transform Alexa from a cost-heavy division into a revenue-generating asset. Investors will be looking for any updates regarding AI monetization strategies and how they may impact Amazon’s broader ecosystem.

Capital Expenditures and Spending Trends

Amazon has significantly increased capital expenditures in recent years, primarily to support AWS expansion and its Kuiper satellite initiative. The company is expected to spend around $75 billion on CapEx in 2024, up from prior years. Recent reports indicate that Amazon’s Mississippi data center project has ballooned to $16 billion, underscoring its aggressive infrastructure build-out. However, analysts at UBS believe Amazon may be entering a period of lower capital intensity in its e-commerce segment, potentially improving free cash flow. Any commentary on future CapEx allocation—especially whether spending on logistics and fulfillment centers will slow—will be closely scrutinized by investors.

Insider Selling: Bezos’ Stock Sales

One notable development during the quarter was Jeff Bezos’ sale of $1.25 billion in Amazon stock in November. While insider selling does not necessarily indicate problems, it often raises eyebrows, especially ahead of a key earnings report. Investors may seek reassurance from management that Bezos’ stock sales do not reflect underlying weakness in the business.

Price Action and Technical Levels

Amazon shares have been among the best performers in the Magnificent 7, gaining 45% in 2024 and 8% year-to-date in 2025. The stock recently hit an all-time high above $250, but has since pulled back slightly amid broader market volatility. Technically, AMZN is testing key support levels near $233, with resistance at $250. The post-earnings reaction will depend on whether the company delivers strong Q4 numbers and provides encouraging guidance for Q1 2025.

Q3 Recap

Amazon (AMZN) delivered a strong Q3 earnings report, surpassing both revenue and profitability expectations. The company reported net sales of $158.88 billion, reflecting an 11% year-over-year increase and exceeding analyst estimates of $157.29 billion. Operating income soared to $17.41 billion, up 56% year-over-year and significantly above the $14.75 billion consensus estimate. Amazon's EPS of $1.43 also topped expectations of $1.16. AWS revenue grew 19% to $27.45 billion, slightly below estimates of $27.49 billion, but the unit’s operating margin hit a record-high 38%, reinforcing its profitability strength. Additionally, North America retail revenue increased 9%, while international sales surged 12%, with both segments demonstrating improved margins. Advertising revenue, an increasingly crucial segment for Amazon, grew 19% to $14.33 billion, though at a slightly slower pace than previous quarters.

Profitability was a standout theme in Q3, with operating margins expanding across all major business segments. North America’s retail margins reached their second-highest level in five years at 5.9%, while international retail margins turned positive at 3.6% after being negative the prior year. These improvements were driven by logistics efficiencies, increased automation through robotics, higher advertising revenue contributions, and disciplined cost management. AWS margins expanded by approximately 250 basis points quarter-over-quarter, demonstrating the strength of Amazon’s cloud services business, particularly as demand for AI infrastructure continues to rise. The AI business within AWS has grown into a multi-billion-dollar revenue segment, increasing at triple-digit rates and surpassing the growth pace of AWS itself at a comparable stage. Despite the strong results, AWS growth remained stable at 19% year-over-year, which some investors viewed as a slight disappointment given the accelerating growth of Microsoft’s and Google’s cloud businesses.

Amazon provided Q4 guidance that reassured investors about the impact of a condensed holiday shopping season. The company projected net sales between $181.5 billion and $188.5 billion, in line with the consensus estimate of $186.36 billion. Operating income guidance of $16 billion to $20 billion was notably higher than expectations, with the top end suggesting an 11% operating margin—potentially a record-high level. Analysts highlighted several key factors supporting Amazon’s ongoing profitability improvements, including the continued efficiency gains in fulfillment operations, strong Prime Day sales, and an expanding role for advertising in overall revenue. Additionally, Amazon announced plans to increase CapEx spending to $75 billion in 2025, largely directed toward AWS expansion and AI investments. With record-high margins in AWS and international retail, Amazon demonstrated that it is executing well on both growth and profitability, reinforcing its long-term appeal to investors.

Conclusion

Amazon heads into its Q4 earnings with significant momentum, driven by robust holiday retail sales and efficiency gains. However, concerns around AWS growth, rising capital expenditures, and logistical challenges persist. Investors will be particularly focused on AWS revenue growth, retail margin expansion, and any updates on Alexa’s AI evolution. While Amazon’s valuation remains attractive compared to its AI and cloud peers, any disappointment in cloud guidance or unexpected cost pressures could trigger a short-term selloff. On the flip side, if Amazon delivers strong cloud growth and a positive outlook, the stock could extend its recent gains and push toward new highs.