Earnings Report Preview | Amazon AWS Faces Intensifying Challenges Amid Trade War Shadows

According to Zhitong Finance APP, Amazon (AMZN.US) will announce its second-quarter results after the U.S. stock market closes on July 31 (Thursday) Eastern Time. Analysts expect Amazon's second-quarter revenue to reach $162 billion, a year-on-year increase of 9.5%, showing continued expansion momentum even compared to last year's strong performance. The market expects operating profit to be $16.7 billion, an increase of 13.8% year-on-year. The operating profit margin is expected to rise from 9.9% to 10.6%. Earnings per share are expected to be $1.33, an increase of 8.1% year-on-year.

Amazon's own guidance indicates that its revenue will be between $159 billion and $164 billion. Management also expects its operating profit to be between $13 billion and $17.5 billion, with the widening range reflecting ongoing uncertainty.

Wall Street's general expectations align with the upper end of management's guidance, indicating analysts' confidence in Amazon's ability to navigate current market challenges in the second quarter.

Driven by demand for artificial intelligence infrastructure and applications, Amazon Web Services (AWS) and advertising will continue to be growth engines for Amazon's business. The year-on-year growth rate for these two sectors is expected to reach 17%, far exceeding the company's overall growth rate.

Meanwhile, online stores, which account for one-third of total revenue, are expected to grow at a more moderate pace of 6%. In the current environment of increasing global uncertainty, market participants will closely monitor e-commerce sales for clues about consumer sentiment.

AWS Cloud Business Faces Intensifying Competition

AWS remains a key driver of the company's profitability, contributing 19% of total revenue. The cloud division is expected to grow 17.4% year-on-year in the second quarter.

However, AWS faces increasing pressure from competitors. Microsoft's Azure and Google Cloud have been actively competing for market share, causing AWS's dominance to decline from 33% in the first quarter of 2022 to 29% in the first quarter of 2025.

The company announced layoffs in the AWS division last week and plans further layoffs in the coming years. Management believes that artificial intelligence can automate many existing tasks, supporting Amazon's key strategy to expand AWS operating profit margins and improve overall company profitability.

AWS's operating profit margin reached a new high of 39.5% in the first quarter. Investors will closely watch whether it can maintain this level while fending off competitive pressures.

Uncertainty in Trade Policies Poses Challenges

Amazon faces significant challenges from changing trade policies. The e-commerce giant sources products globally, but 60% of its revenue comes from North America, making it vulnerable to tariff changes.

Management emphasized the "huge uncertainty" brought by trade policies in previous earnings call meetings. Investors will seek clear information on how Amazon plans to address these challenges.

Tariff increases present Amazon with difficult choices. Absorbing costs would hurt profit margins, while passing costs onto consumers would reduce purchasing power and sales The complexity of the constantly changing trade rules has also increased the management burden. Amazon must continuously adjust its pricing strategies and supply chain management to maintain compliance and competitiveness.

Artificial Intelligence Opportunities Beyond Cloud Services

In addition to AWS, Amazon has many opportunities to commercialize artificial intelligence. The company's vast customer database provides rich material for improving advertising algorithms and targeting, which can enhance profitability by increasing conversion rates and boosting advertiser spending.

Artificial intelligence can significantly enhance inventory management and logistics operations. These improvements may help Amazon reduce costs while enhancing customer experience and shortening delivery times.

The launch of Alexa+ highlights its focus on artificial intelligence consumer products. If Alexa+ can succeed, it may bring the company new revenue sources beyond traditional e-commerce and cloud services.

Analyst Sentiment Remains Generally Optimistic

Wall Street analysts generally have a positive view of Amazon. Data shows that out of 73 analysts, 69 have given the stock a "Buy" or "Strong Buy" rating.

The average target price has risen from $240 after the first quarter earnings report to the current $251.34, but it is still below the peak of about $266 in March. This indicates that the stock still has about a 10% upside potential compared to recent trading levels