Amazon, a ‘top pick’ of Wall Street, set to report with AI spending in focus

Amazon (AMZN) is scheduled to report fourth quarter results after the market close on Thursday, February 6, with a conference call scheduled for 5:00 pm Eastern Time. What to watch for:

EXPECTATIONS: Current consensus EPS and revenue forecasts for Amazon’s December-end quarter stand at $1.48 and $187.23B, respectively, according to data provided by LSEG Data and Analytics. That $1.48 EPS estimate for the fourth quarter is up 2c over the past 90 days ago, according to LSEG Data.

AI: Along with its last earnings report, Amazon said it expects “more than” $75B in capital expenditures in FY25, with most going to AI. The next day, Truist raised the firm’s price target on Amazon shares and kept a Buy rating, noting that the company’s Q3 results were ahead of expectations across the board, with particular strength in International growth and profitability as well as a material step up in margins in North America Stores and AWS. Amazon’s AI investments are pushing capex up to $75B this year and $90B in 2025, but the management has “earned the right” to invest aggressively ahead of this massive opportunity, the firm added.

On November 22, Amazon announced that the company and Anthropic were “deepening their collaboration.” Anthropic is now naming AWS its primary training partner, in addition to continuing to be its primary cloud provider, and will use AWS Trainium and Inferentia chips to train and deploy its future foundation models, the e-commerce giant noted. In addition to Anthropic naming AWS its primary training partner and using AWS Trainium to train and deploy its largest foundation models, Amazon will invest an additional $4B in Anthropic, the company stated.

At AWS re:Invent in early December, Amazon Web Services announced new data center components “designed to support the next generation of artificial intelligence innovation and customers’ evolving needs.” AWS said: “These capabilities combine innovations in power, cooling, and hardware design to create a more energy efficient data center that will underpin further customer innovation. These new capabilities will be implemented globally in AWS’s new data centers, and many components are already deployed in its existing data centers… Today, AWS’s data centers support millions of active customers worldwide, including hundreds of thousands of customers using AWS AI and machine learning services, and tens of thousands of global customers using Amazon Bedrock to build their generative AI applications. As use of generative AI continues to grow and GPU capacity demands increase, AWS data centers are adapting to support increasingly higher power densities.”

Following that event, BMO Capital noted that among the most heavily attended sessions was the company’s “Ongoing Shift from On-Prem to Cloud Workloads,” telling investors that the firm believes that AWS will not only benefit from incremental Cloud/AI workloads near term, but also unlock new capabilities through ongoing innovations over the next decade. BMO further stated that Amazon’s ongoing rollout of Same-Day buildings with lower capex versus fulfillment centers is improving customer experience levels that will unlock retail free cash flow in 2025.

In its own note after Amazon hosted its annual AWS re:Invent conference, Wedbush told investors that the firm was encouraged by the pace of innovation at AWS and came away from re:Invent with increased conviction in the trajectory of AWS growth and the health of Amazon’s competitive positioning relative to peers.

The buzz around DeepSeek, a Chinese-built large-language open-source model that claims to rival offerings from OpenAI’s ChatGPT and Meta Platforms (META) but using a much smaller budget, sent several U.S. technology stocks tumbling on January 27. DeepSeek’s new AI model was being praised for being cost-effective and capable of running on less-advanced chips, which raised questions about the high valuations of companies like Nvidia (NVDA).

Jefferies views DeepSeek’s launch “as part of an ongoing evolution, not revolution” and calls the market selloff in software stocks “largely overdone.” Innovations which continue to drive increasing efficiency at inference, but also training, will further improve the return on investment of artificial intelligence, leading to faster software adoption, the analyst argues. Jefferies maintains its existing rationale for owning Microsoft (MSFT) and Amazon for enterprise, Meta and Alphabet (GOOGL) for consumer, and Snowflake (SNOW) for a potential data and AI “breakout play.” Inference efficiency is part of an ongoing trend with DeepSeek and not as incremental as some lead to believe, according to Jefferies.

Earlier this week, Greg Bensinger of Reuters reported that Amazon is set to release its delayed Alexa generative artificial intelligence voice service at a press event on February 26. Amazon is hoping Alexa AI, designed to be able to converse with users, can convert some of its hundreds of millions of users into paying customers, according to Reuters, citing people familiar with the matter. Initially, Amazon plans to roll out the new Alexa service to a limited number of users and will not charge for it, though it has considered a $5 to $10 monthly fee, sources told Reuters. The company will also continue to offer “Classic Alexa,” the version broadly available today for free.

TOP PICK: In December, JPMorgan raised the firm’s price target on Amazon to $280 from $250 and kept an Overweight rating on the shares. Despite continued strong share performance and select higher valuations, JPMorgan remains positive on the internet group into 2025, the analyst told investors. The firm expects artificial intelligence to continue to dominate the investment narrative, but says the focus will shift more to agents and applications. JPMorgan expects AI-driven capex to increase as mega-caps move beyond some of the compute constraints of 2024, and increased 2025 capex for Meta, Alphabet, and Amazon, all above consensus. The firm’s top picks for 2025 are Amazon, Meta, Alphabet, and Spotify (SPOT), it noted at that time.

To kick off this year, Wedbush raised the firm’s price target on Amazon and kept an Outperform rating on the shares, while naming it a top pick for 2025. The firm thinks investors are underappreciating the pace of operating income growth and improving trends at AWS that have resulted in four consecutive quarters of accelerating cloud growth. Amazon’s operating income growth is best-in-class among mega cap internet peers and Wedbush expects Amazon will grow operating income 24% year-over-year in 2025, above both Google and Meta, the analyst stated.

Also in early January, Cantor Fitzgerald raised the firm’s price target on Amazon and kept an Overweight rating on the shares as part of a broader note on internet stocks. The fundamental internet backdrop remained healthy entering 2025, despite emerging risks like tariffs, and the pace of innovation in areas such as AI, AVs, robotics, and quantum computing is accelerating, the analyst told investors. The firm expects digital ads, e-commerce, and mobility, to deliver strong growth and margin expansion in 2025. Amazon is one of the firm’s top picks for 2025 to play the accelerating AI deployment theme.

Meanwhile, Argus named Amazon the firm’s 2025 Top Pick in Consumer Discretionary. AWS appears to be leveraging its leading market share in cloud to become a major player in the AI space, and CEO Andy Jassy stated that AI is growing three-times faster than cloud at this stage of its development, the analyst told investors. Amazon’s Anthropic partnership also meaningfully strengthens AWS at a key time in the “AI gold rush,” the firm added.

Similarly, Morgan Stanley raised the firm’s price target on Amazon and keeps an Overweight rating on the shares, which were also named the analyst’s “Top Pick” among the North American Internet group. While the analyst believes the market largely appreciates AWS for its strong GenAI position, Amazon is already incorporating improving matching/recommendation algorithms and shopping assistants, better inventory and logistics routing, robotics, diffusion-enabled advertising tools, says the analyst, who argues that the company’s “GenAI opportunities down the Retail P&L are less appreciated.”

Among analysts tracked by Bloomberg that have updated their views on Amazon within the last twelve months, 79 have Buy or equivalent ratings, four have Hold or equivalent ratings and only one has a Sell or equivalent rating. The average twelve month price target of 56 of those analysts is $257.33.

SENTIMENT: Check out recent Media Buzz Sentiment on Amazon as measured by TipRanks.