Amazon faces AI funding scrutiny before $202.2 bn Q3 sales

Evercore said in an Oct. 26 trade-press preview that Amazon.com's third-quarter revenue consensus of $202.2 billion, up 12% year on year, looks reachable before results due Oct. 29.

The Evercore preview shifts the earnings debate toward spending rather than sales. The third-quarter revenue estimate is $42.0 billion below Wall Street's fourth-quarter consensus of $244.2 billion, according to Atlas360 calculations, reflecting the larger holiday-period base investors will soon assess.

Evercore said operating income is projected at $26.2 billion for the third quarter, implying a 13.0% margin. The firm said those estimates are achievable, with Amazon Web Services, the company's cloud-computing business, expected to provide the main support.

Retail and advertising may also help the quarter, Evercore said. The firm said consensus estimates sit near the high end of Amazon's own guidance range for the period.

The larger question is whether investors focus more on artificial-intelligence funding than on a narrow earnings beat or miss. Evercore said concerns about financing AI initiatives may weigh more on Amazon's stock than the reported quarterly figures, while also saying Amazon is better positioned than peers to manage capital expenditures.

Capital expenditures are outlays for long-lived assets, such as data centers, chips and logistics infrastructure. UBS raised its Amazon price target to $348 and kept a Buy rating, while projecting capital expenditures above $300 billion by 2027, a figure more than five times the combined third- and fourth-quarter operating-income estimates of $59.3 billion, according to Atlas360 calculations.

Evercore maintained an Outperform rating with a $355 price target, citing potential earnings growth from AWS and advertising and identifying fresh groceries as another growth area. BMO Capital also reiterated an Outperform rating, with a $380 target, pointing to durable AWS growth and near-term growth expectations above consensus.

Amazon shares edged up 0.76% to $249.88 in Nasdaq real-time data displayed by Investing.com at 14:15:14. InvestingPro data in the same article showed Amazon trading at a price-to-earnings ratio of 19.98 and a PEG ratio of 0.22, a valuation measure comparing price to expected growth.

The risks are concentrated around cash generation and market expectations. UBS said higher spending could leave Amazon with zero or negative free cash flow, while options data suggested a 6.6% share-price move after the earnings report based on historical patterns, without indicating direction.

Amazon's Oct. 29 earnings report will show whether third-quarter revenue met the $202.2 billion consensus estimate cited in the preview, equivalent to 12% year-on-year growth.

The same report will let investors compare reported third-quarter operating income and margin with the $26.2 billion estimate and 13.0% margin level cited by Evercore.

Amazon's fourth-quarter outlook and spending commentary will be tested against Wall Street expectations for $244.2 billion in revenue and $33.1 billion in operating income.