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Amazon earnings updates: Q1 EPS crush estimate as AI spend and AWS remain in focus for Wall Street [Business Insider]

Amazon earnings updates: Q1 EPS crush estimate as AI spend and AWS remain in focus for Wall Street

Amazon delivered a decisive earnings beat in its first-quarter results this week, posting earnings per share (EPS) that handily crushed analyst expectations, even as the company continues to pour billions into artificial intelligence infrastructure and its cloud computing arm, Amazon Web Services (AWS). Investors and market watchers, who had been bracing for potential pressure from rising costs, were instead greeted with a report that underscored the company’s ability to balance massive investment with improved profitability.

The tech giant reported Q1 earnings per share of $0.98, well above the consensus estimate of $0.83 according to data compiled by Bloomberg. Revenue for the quarter came in at $143.3 billion, a 13% increase year-over-year, also slightly ahead of expectations. The headline number, however, was the EPS beat, which sent the stock up more than 3% in after-hours trading immediately following the release.

“This was a strong quarter for Amazon by almost any measure,” said one analyst covering the stock. “The market was nervous about the pace of AI spending, but the underlying business performance, particularly in retail and advertising, was resilient. And AWS is still the anchor.”

AWS growth reaccelerates, but AI spend remains a key question

AWS, the company’s profit engine that accounts for a significant portion of operating income, posted revenue of $25.0 billion, up 17% year-over-year, easily topping estimates of $24.5 billion. The growth rate marks a notable acceleration from the mid-teens growth seen in recent quarters, driven by enterprises migrating more workloads to the cloud and by the initial wave of AI-related workloads.

Amazon CEO Andy Jassy has been vocal about the opportunity in generative AI, positioning AWS as the platform of choice for companies looking to build and deploy models. During the earnings call, Jassy highlighted that AWS’s AI business is growing at a triple-digit percentage rate, albeit off a small base. He also noted that the company’s capital expenditures, which surged to $14 billion in the quarter, were largely tied to AI infrastructure, including data centers, custom chips, and networking gear.

That spending has been a major point of concern for some investors who worry about a margin squeeze. But the Q1 results suggest that Amazon is managing to keep costs in check. Operating income rose to $15.3 billion, up from $8.9 billion in the same period last year, with operating margins improving to 10.7% from 7.4%.

“They are spending aggressively, but they are also making more money on the business they have,” said a portfolio manager focused on technology. “The market is giving them credit for that discipline right now, but the bar is high for the rest of the year.”

Advertising and retail margins boost the bottom line

Beyond AWS, Amazon’s advertising business continued to be a standout. The segment generated $11.8 billion in revenue, up 24% year-over-year, as more brands flock to the platform to reach shoppers. This high-margin revenue stream is increasingly becoming a critical lever for profitability, offsetting the lower margins in traditional retail.

Retail margins also improved, thanks to cost-cutting measures implemented over the past year. The company has been regionalizing its fulfillment network, which has lowered shipping costs and improved delivery speeds. Amazon reported that it delivered more than 2 billion items the same day or overnight in the quarter, a record for the company, while still reducing per-unit costs.

“The efficiency gains in the fulfillment network are real,” Jassy said on the call. “We are not sacrificing service for cost. We are doing both.”

Outlook and what Wall Street is watching next

For the current quarter, Amazon guided for revenue between $144 billion and $149 billion, roughly in line with analyst expectations. However, the company’s operating income forecast of $10 billion to $14 billion was slightly below the high end of some estimates, reflecting continued heavy investment in AI and the launch of new AWS data center regions.

Wall Street’s focus now shifts to the pace of AI monetization. While Amazon has been slower than rivals Microsoft and Google in rolling out consumer-facing AI products, it is betting heavily on enterprise adoption. The company recently unveiled its “Amazon Q” AI assistant for business users and upgraded its “Bedrock” platform for developers, both of which are expected to contribute meaningfully to revenue later this year.

Analysts also noted that Amazon’s free cash flow continues to improve, reaching $50.1 billion over the trailing twelve months, up from a negative position just two years ago. That metric, combined with a growing advertising business and a resurgent AWS, provides a cushion for the massive capital expenditure plan.

“The story here is not just about AI spending, it's about the return on that spending,” one analyst said. “Amazon is showing that it can invest hundreds of billions and still generate strong earnings. That is the narrative that will likely keep the stock supported.”

As the market digests the Q1 beat, the key question for the rest of the year is whether the AI buildout will start to show up in the revenue line, and whether the consumer retail business can maintain its momentum in an uncertain economic environment. For now, Amazon has delivered a report that checks most of the boxes, leaving investors with a cautiously optimistic outlook.

Ahmed Abed – News journalist

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