Should Investors Buy Amazon Stock Ahead of Q2 Earnings Release?
Image Source: Zacks Investment Research
The company has been benefiting from its dominant position in the e-commerce and cloud markets. It is also riding on strengthening generative AI capabilities.
AMZN's Earnings Surprise History
Amazon has an impressive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 17.78%. The company's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 20.68%.
Amazon.com, Inc. Price and EPS Surprise
Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote
Earnings Whispers for AMZN
Our proven model predicts an earnings beat for Amazon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.AMZN has an Earnings ESP of +7.37% and sports a Zacks Rank #1 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Factors Shaping AMZN's Q2 Results
As Amazon prepared to report its second-quarter 2025 earnings, multiple catalysts positioned the company for strong performance across its diversified business segments. The e-commerce giant entered the quarter with robust momentum from its first-quarter results, which delivered $155.7 billion in net sales and demonstrated the company's ability to navigate macroeconomic headwinds while maintaining growth trajectories.
AWS and AI Initiatives
Amazon Web Services continued to assert its dominance in the cloud computing space, with the company's AI initiatives gaining significant traction during the second quarter. Our model estimate for AWS revenues indicates 16.9% year-over-year growth to $30.72 billion in the to-be-reported quarter. The launch of Amazon Nova models is expected to have gained momentum throughout the quarter under review, with the newly introduced Nova Sonic speech-to-speech foundation model and Nova Act SDK enabling developers to build more sophisticated voice-based AI applications and action-oriented agents. These technological advances positioned AWS to capture increased demand from enterprises, accelerating their AI adoption, supporting expectations for continued strong revenue growth in the cloud segment.The rollout of Trainium 2 chips accelerated in the second quarter, offering customers 30-40% better price performance compared with GPU-based instances, which is expected to have strengthened AWS' competitive positioning in the rapidly expanding AI infrastructure market against its strong contenders like Microsoft MSFT, Alphabet GOOGL and Oracle ORCL.
Advertising, E-commerce and Physical Retail Growth in Q2
Amazon's advertising business demonstrated robust growth with first-quarter revenues of $13.9 billion, up 19% year over year, indicating strong advertiser demand and effective monetization of the company's vast customer base. The advertising platform's reach extended to more than 275 million users in the United States alone, providing significant scale for brand partners. This momentum is expected to have continued into the second quarter as Amazon expanded its full-funnel advertising capabilities across Prime Video, Twitch, and other entertainment properties.The e-commerce segment is expected to have benefited from improved fulfillment network efficiency following the redesigned inbound architecture implemented in the first quarter. This optimization enabled faster delivery speeds and better inventory placement, which traditionally drives higher customer satisfaction and increased purchase frequency. The company's focus on everyday essentials proved particularly valuable, with this category growing more than twice as fast as the overall business and representing one-third of units sold in the United States. Our model estimate for revenues from online stores is pegged at $60.2 billion, indicating an 8.8% year-over-year increase.Amazon's physical retail operations are expected to show healthy growth, with model estimates projecting physical store sales of $5.38 billion, indicating a 3.4% year-over-year increase. The integration of technologies like Amazon Dash Cart into brick-and-mortar locations strengthens the company's omnichannel presence.Third-party seller services remain a significant growth driver with model estimates pegged at $39.1 billion, indicating an 8.3% year-over-year increase. This reflects Amazon's continued success in monetizing its marketplace platform and fulfillment services.
Prime Day and Enhanced Customer Experience
The company's redesigned inbound network architecture, which improved inventory placement and delivery speeds, enhanced the customer experience during this high-volume period. Amazon achieved record delivery speeds for Prime members in the first quarter, setting a strong foundation for the quarter under review.The introduction of Alexa+, Amazon's next-generation personal assistant, began gaining traction with more than 100,000 users during its initial rollout. This enhanced AI-powered assistant, which can both answer questions and take actions, represented a significant advancement in smart home technology and positioned Amazon to capture additional market share in the growing voice assistant market.
International Expansion and Innovation
Amazon's international operations showed resilience with 8% growth excluding foreign exchange impacts in the first quarter, and the second quarter included the launch of Amazon.ie in Ireland, expanding the company's European footprint. The introduction of luxury shopping through Saks on Amazon and partnerships with brands like Michael Kors and The Ordinary diversified the product offering and attracted new customer segments.Project Kuiper reached a significant milestone with successful satellite launches, positioning Amazon to begin customer service later in 2025. This initiative represented a substantial long-term growth opportunity in the broadband connectivity market, particularly for underserved rural areas. The company's continued investment in logistics infrastructure, including the $4 billion commitment to expand rural delivery networks, was expected to enhance competitive advantages and customer reach in the second quarter and beyond.
AMZN Price Performance & Stock Valuation
Shares of Amazon have gained 5.5% in the year-to-date period compared with the broader Zacks Retail-Wholesale sector and the S&P 500 index's increase of 6.9% and 8.2%, respectively.
AMZN's Year-to-Date Performance
Image Source: Zacks Investment Research
Now, let's look at the value Amazon offers investors at current levels. AMZN is trading at a premium with a forward 12-month P/S of 3.34X compared with the Zacks Internet - Commerce industry's 2.17X, reflecting a stretched valuation.
AMZN's P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Investment Thesis
Amazon's diversified ecosystem positions it as a compelling buy despite premium valuation, with AWS expected to deliver strong 16.9% growth to $30.72 billion in second-quarter 2025, driven by accelerating AI adoption through Nova models and cost-effective Trainium 2 chips. The company's advertising segment maintains robust 19% growth momentum while e-commerce benefits from optimized fulfillment networks, achieving record delivery speeds. International expansion through Amazon.ie and luxury partnerships diversifies revenue streams. While facing intense competition from Microsoft, Alphabet, and Oracle, Amazon's integrated platform spanning cloud, retail, and emerging technologies like Project Kuiper creates sustainable competitive advantages justifying current valuations for long-term investors.
Conclusion
Amazon's diversified business model, spanning high-growth AWS cloud services, robust advertising momentum, and optimized e-commerce operations, creates multiple revenue catalysts ahead of second-quarter 2025 earnings. The company's strategic investments in AI infrastructure, international expansion, and next-generation technologies like Project Kuiper establish sustainable competitive moats. Despite premium valuations, Amazon's integrated ecosystem and growth trajectory make it an attractive buy for investors.
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