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Amazon’s Upcoming Earnings and AI Investments
Amazon (AMZN) is set to disclose its first-quarter earnings on Wednesday, coinciding with reports from major competitors Google (GOOG, GOOGL), Meta (META), and Microsoft (MSFT). Investors are keenly anticipating insights into the company’s substantial investments in artificial intelligence (AI) and their effectiveness.
Significant Investment in AI
A collective forecast suggests that hyperscale AI companies will invest approximately $650 billion in capital expenditures by 2026, with Amazon anticipated to contribute around $200 billion to this total expenditure. Despite the high costs associated with AI projects, Wall Street sentiment remains favourable toward Amazon, reflected by a 13% increase in its stock price year-to-date, outperforming Google’s 12% rise and contrasting with Microsoft, whose stock has fallen by 12%.
Challenges from Rising Costs
Nevertheless, Amazon faces challenges, notably rising shipping costs resulting from escalating fuel prices. This situation could adversely affect e-commerce revenue in the upcoming quarter. Morgan Stanley’s analyst, Brian Nowak, indicated that if fuel prices negatively trend, Amazon could experience a $4 billion headwind, even factoring in fuel surcharges. In their modelling, Nowak estimated fuel costs at $600 million for Q1 and $2 billion for Q2 but remains optimistic that the company will mitigate these costs in the latter half of the year.
Earnings Forecast
According to consensus estimates from Bloomberg, Amazon is expected to report earnings per share (EPS) of $1.62 on total revenues of $177.2 billion for the quarter. This is slightly up from the prior year, where they reported an EPS of $1.59 on revenues of $155.6 billion. The predictions for Amazon’s business segments are promising, with e-commerce revenues projected at $62.65 billion and advertising revenue anticipated to reach $16.89 billion, marking a 21% increase year-on-year. Furthermore, Amazon Web Services (AWS) is projected to generate approximately $36.79 billion, a 25% rise from the previous year.
Remaining Performance Obligations (RPOs)
A key metric that investors will focus on is Amazon’s remaining performance obligations (RPOs)—contracts that the company has entered into with clients but has not yet received payment for. As reported in Q4, Amazon recorded RPOs of $244 billion, which gives investors insight into the demand for its cloud services and the company’s ability to fulfil it.
AWS and AI Revenue Growth
In his recent shareholder letter, CEO Andy Jassy noted that AWS’s AI revenue is currently on a trajectory exceeding $15 billion as of Q1 2026 and is continuing to escalate. However, he pointed out that AI growth could be faster if not for capacity constraints, despite the addition of 3.9 gigawatts in 2025 and plans to double that by 2027.
Amazon’s Chip Business
Additionally, Amazon’s chip manufacturing segment is emerging as a vital component of its AWS operations. Jassy highlighted plans for selling Amazon’s processors to third parties rather than solely relying on rentals. The current revenue run rate for Amazon’s chip business stands at around $20 billion, growing rapidly year-over-year. If considered as an independent business, Jassy estimates the run rate could be closer to $50 billion.
Strategic Partnerships and Future Investments
Recently, Amazon announced collaborations that include supplying Graviton CPUs to Meta for enhancing its AI functionalities. Furthermore, the company expanded its partnership with Anthropic, agreeing to provide computing power through its Trainium chips. As part of this collaboration, Amazon plans to invest $5 billion in Anthropic with an option to further invest $20 billion down the line.
In summary, while Amazon is navigating challenges related to rising operational costs and fuel prices, its strategic commitments to AI and cloud services, especially through AWS, position it well in a rapidly evolving tech landscape. The earnings report is crucial for investors keen on understanding the full impact of these investments.
