By Deborah Mary Sophia
(Reuters) – Amazon.com faces significant pressure to meet the grand expectations surrounding its cloud computing capabilities in the upcoming fourth-quarter results on Thursday. Investor confidence took a hit after Microsoft and Google revealed underwhelming performance, casting doubt on Big Tech’s substantial bets on artificial intelligence.
In the past couple of years, tech giants saw their stocks climb based on the belief that the growing need for AI-centric datacenters would fuel long-term investments. However, the narrative shifted when the Chinese startup, DeepSeek, announced AI advancements achieved at much lower costs. This development triggered a tech stock selloff, seen by some as an anticipated correction.
Yet, analysts suggest that Amazon might be in a better position than its competitors to harness inexpensive AI. This is primarily due to its massive cloud infrastructure and relatively lower reliance on high-cost, large-language models like ChatGPT.
Amazon Web Services (AWS), the leading cloud provider globally, is looking at a projected 19.3% revenue boost—the most substantial in eight quarters—according to data from LSEG.
Nevertheless, Microsoft’s and Meta’s recent need to justify their AI expenditures, along with a notable 8% dip in Alphabet’s shares after announcing higher-than-expected capital expenditure, have put the spotlight firmly on Amazon’s cloud growth.
Dave Wagner, a portfolio manager at Aptus Capital Advisors, which holds stakes in these tech firms, remarked, “Amazon’s cloud performance is under heightened scrutiny due to Microsoft’s and Google’s reports. However, a standout performance by Amazon would be warmly received by the market.”
Amazon has recently become the first major cloud provider to integrate DeepSeek’s AI models, declaring that its capital spend, largely focused on AI, will exceed its 2024 estimate of $75 billion.
The decelerating growth rates at Microsoft Azure and Google Cloud, the second and third largest cloud players respectively, have sparked apprehension among analysts regarding AWS’ future performance.
Bob O’Donnell, Chief Analyst at TECHnalysis Research, commented, “Microsoft and Google both cited capacity constraints. It’s likely Amazon might face similar challenges, impacting its growth rate compared to market expectations.”
Some analysts interpret the struggles of its competitors as an indication that Amazon is advancing in the AI sector, supported by initiatives like bolstering investments in companies like Anthropic and expanding its range of AI models available on its cloud platform.
“We believe AWS is regaining market share. While it previously lagged behind Microsoft Azure and Google Cloud on growth, Amazon’s enhanced AI offerings may lead to a less severe slowdown than its competitors,” noted Gil Luria, an analyst at D.A. Davidson.
Amazon’s current forward price-to-earnings ratio stands at nearly 39, surpassing Microsoft’s 29 and Alphabet’s 22.4, based on LSEG data.
RETAIL POWER
The robust holiday shopping season could also bolster Amazon’s results, in contrast to competitors like Target and several apparel brands, which have all reported optimistic forecasts recently.
Projections show Amazon’s North American sales might see a 9% year-over-year increase in the fourth quarter. With earlier signs of sluggish online sales, experts believe Amazon is poised for a recovery in its retail sector, a vital factor affecting its post-earnings stock performance over the last two quarters.
Data from Adobe Analytics reveals that during November and December 2024, U.S. shoppers spent over $240 billion online, drawn by hefty discounts spanning from televisions to toys.
Holiday spending showed an 8.7% growth rate, almost doubling the 2023 figure of 4.9%.
Amazon’s initiatives to speed up delivery times and broaden its product selection—focusing on groceries, pharmacy goods, and fashion—have been identified by analysts as key strategies for driving growth.
“There are strong signs it was a prosperous quarter. The holiday figures are encouraging for consumers, and thus there’s ample confidence that Amazon fared well in this segment,” Luria mentioned.
(Reporting by Deborah Sophia in Bengaluru; Editing by Pooja Desai)
