There’s perhaps no bigger or more important stock left on the earnings docket this quarter than Amazon (NASDAQ:AMZN), which is set to report its earnings on February 6. The e-commerce giant’s earnings report won’t only be important for investors in the mega-cap tech giant. Rather, these earnings will provide color on where the overall tech sector could be headed, given Amazon’s integral role in the e-commerce, cloud, and AI sectors.
An absolute giant that has seen incredible momentum fueled by strong demand for its core e-commerce and AWS businesses (driving solid advertising growth), Amazon has since ridden the AI train to new highs as investors bet this is a company that could benefit from long-term efficiencies created by AI technology over time.
So, let’s dive into how much downside this stock could have following its upcoming report, and if bears calling for 5% downside could be vindicated in the days to come.
Key Points About This Article:
- Amazon is among the most pivotal companies to report earnings to start the year, with all eyes on how this economically-sensitive giant will perform.
- Here’s what to watch with the company’s upcoming earnings report.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
What Analysts Think of Amazon
Amazon’s upcoming Q4 2024 earnings report, set for release on February 6, is expected to highlight strong revenue growth and improved profitability. Analysts forecast total revenue of $187.4 billion, reflecting a 10% year-over-year increase, while earnings per share (EPS) is projected at $1.48, marking a 48% jump from the previous year. These gains are largely expected to be driven by Amazon’s continued dominance in e-commerce, cloud computing, and digital advertising.
Profitability is also expected to show notable improvements. The company’s North American operating margin is projected to rise to 6.7%, up from 1.1% a year ago, with estimates ranging between 4.0% and 7.8%. However, AWS margins could decline from 38.1% to 35.3%, with forecasts ranging from 30% to 39%, as increased AI investments and growing competition put pressure on profitability. Despite this, AWS revenue is estimated at $29 billion, underscoring its role as Amazon’s key profit driver.
Other growth areas include Amazon’s expanding advertising segment, which has become a crucial contributor to overall margins, and the e-commerce division, which is benefiting from strong holiday season sales. These factors, combined with Amazon’s ability to leverage fixed costs in retail, reinforce its long-term growth potential.
Overall, analysts remain bullish on Amazon stock, with most maintaining a “Buy” rating. While concerns over AWS margins persist, the company’s diversified revenue streams, operational efficiencies, and continued expansion in high-margin sectors make it a strong contender for sustained earnings growth.
Key Catalysts to Watch for 2025 and Beyond
Amazon’s outlook for 2025 is shaped by several key growth catalysts across its diverse business segments. AWS remains a major driver, with artificial intelligence (AI) integration fueling its expansion. Large language models (LLMs) and proprietary AI advancements are expected to strengthen AWS’s cloud dominance. Analysts project AWS revenue to exceed $100 billion, with AI-powered inference workloads accelerating demand.
E-commerce growth also plays a crucial role. Amazon’s Prime membership base and strong market share continue to drive online shopping, which is outpacing traditional retail. Despite rising operational costs, Amazon’s ability to leverage fixed costs is expected to improve margins, even as it invests in ambitious projects like Project Kuiper. Meanwhile, the advertising segment is surging, cementing Amazon’s position as the second-largest search advertising platform. This high-margin business is poised for further expansion, significantly boosting overall profitability.
Amazon’s push into AI-driven innovations is another growth driver. With proprietary chips, supercomputers, and AI solutions like Amazon Bedrock, the company is well-positioned to compete in the enterprise AI space. Increased customer adoption of these tools will further solidify its foothold in artificial intelligence.
Beyond tech, Amazon is making strategic moves into healthcare and pharmacy services, aiming to expand Same-Day Delivery nationwide. This initiative showcases Amazon’s commitment to diversifying its revenue streams.
Other Factors to Consider
Amazon now provides access to DeepSeek’s low-cost AI models alongside offerings from Anthropic and Meta (META). Chinese startup DeepSeek challenges U.S. leaders like OpenAI, Google, and Anthropic by developing AI at a fraction of their costs, disrupting the market.
AI development has relied on large language models requiring vast data, but open-source advancements have reduced costs and commoditized the market. JPMorgan’s Gokul Hariharan questioned large-scale GPU investments, as cheaper training models gain traction. DeepSeek now rivals Meta, the open-source AI leader, with CEO Mark Zuckerberg stressing the need for an American AI standard to maintain national advantage.
Wall Street analysts maintain a Strong Buy rating on AMZN, with 47 Buys and one Hold in the past three months. Following a 50% stock rally, the average price target of $256.86 suggests upside of roughly 7.1% from here. So, while this is a stock that could certainly also decline by around 5% following earnings, it’s one that most investors are betting on to the upside. I think that’s a smart move.
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