Amazon.com (AMZN.US) is scheduled to announce its first-quarter 2026 financial results after the U.S. market closes on Wednesday. Wall Street analysts generally anticipate that revenue will increase by 13% year-over-year to $177.2 billion, driven by accelerated expansion in its cloud computing business (AWS) and sustained robust growth in its advertising segment. Adjusted earnings per share are projected to rise to $1.63.
In its fourth-quarter 2025 report released in early February, Amazon surpassed market revenue expectations, fueled by strong performance from AWS, where revenue grew 24% year-over-year, and its advertising business, which saw a 23% increase. Although retail margins improved, net profit grew 6% to $21.192 billion, with earnings per share of $1.95, slightly below market expectations.
Notably, Amazon announced during its Q4 report that its capital expenditures for 2026 are planned to reach a record $200 billion, a 60% increase from 2025. The majority of this investment is directed towards artificial intelligence (AI) infrastructure, including data center expansion, development of in-house chips, and deployment of high-speed networking equipment. However, this aggressive spending plan has raised concerns among some investors regarding the near-term return on such substantial AI investments and the payback period, contributing to a stock decline of over 12% during February.
AWS is demonstrating strong growth momentum as demand for generative AI infrastructure continues to expand, leading to increased enterprise spending on cloud services for large model training and inference. This trend is propelling AWS into an accelerated growth phase. Its specialized AI chip families, Trainium and Inferentia, are gradually being deployed commercially, which is expected to enhance AWS's competitiveness in the global cloud market and narrow the gap with competitors like Microsoft Azure and Alphabet's Google Cloud.
Amazon CEO Andy Jassy revealed in his 2025 letter to shareholders that AWS added 3.9 gigawatts of data center power capacity in 2025 and plans to double its total capacity by the end of 2027. Despite persistent compute bottlenecks and unmet customer demand, AWS maintains robust growth. AWS has established a comprehensive ecosystem of in-house chips, covering three main product lines: Nitro NIC networking chips, Graviton CPUs, and Trainium XPU AI chips. In late 2025, AWS launched its next-generation custom Trainium3 chip and Trainium3 UltraServer. AWS CEO Matt Garman stated that the Trainium3, built on TSMC's 3-nanometer process, offers four times the performance of its predecessor. The subsequent Trainium4 AI chip is expected to be fully launched in October 2027.
Currently, AWS's custom chip business is commercialized indirectly through EC2 instances, generating annual revenue exceeding $20 billion. The in-house chip strategy is crucial for reducing Amazon's reliance on high-cost NVIDIA (NVDA.US) hardware. However, a core challenge for Trainium3 remains attracting large external customers. As Alphabet's Google TPU continues to gain market share, Trainium3 shipment volumes are closely watched. If Amazon can demonstrate that its chips significantly reduce training costs, it would gain greater bargaining power in negotiations with NVIDIA.
The advertising business is emerging as a key growth area. While AWS has long been Amazon's profit pillar, the advertising segment is no longer just a side business. Centered around Sponsored Products, advertising revenue grew 23% year-over-year in the fourth quarter of 2025, significantly outpacing the company's overall revenue growth. Given that advertising margins are substantially higher than those of the retail business, its expansion continues to boost overall profitability.
Fourth-quarter 2025 advertising revenue reached $21.3 billion, effectively monetizing closed-loop retail data and establishing Amazon as a major competitor in the digital advertising landscape, now ranking among the top global players. Leveraging a big data architecture built on user purchase intent, Amazon Ads offers sellers, suppliers, and agencies various formats including search ads, display ads, and video ads, enabling precise targeting both on and off its platform. Core products include Sponsored Products, Sponsored Brands, and Sponsored Display. Amazon Ads is now the third-largest digital advertising platform in the United States, demonstrating strong resilience. With the full rollout of the Prime Video ad-supported tier and the restoration of advertiser budgets after the holiday shopping season, first-quarter advertising revenue is expected to maintain double-digit growth.
Meanwhile, Amazon's external partnerships in the AI space are drawing significant market attention. On April 20th, Amazon announced a deepened strategic collaboration with AI unicorn Anthropic. Under the agreement, Anthropic committed to purchasing over $100 billion in computing resources from AWS over the next decade. Amazon, in turn, will make an additional strategic investment of up to $25 billion, building on a previous $8 billion investment. The two companies will also collaborate on technology R&D. Anthropic will participate in defining and optimizing the next-generation Trainium chips developed by Amazon's custom chip team, Annapurna Labs, while AWS will provide Anthropic with a total of 5 gigawatts of multi-generation Trainium chip computing power.
Furthermore, OpenAI recently announced the completion of a new funding round totaling $110 billion, with Amazon leading a $50 billion investment—a record single corporate investment for Amazon. However, regulatory scrutiny remains a notable risk. Previously, Microsoft reportedly considered legal action regarding Amazon's approximately $50 billion partnership with OpenAI. Regulatory reviews of such large-scale tech investments can lead to procedural delays or even forced modifications to deal terms, which remains a key market focus. Investors should monitor whether Amazon can successfully advance these strategic partnerships and how the related investments will ultimately impact its long-term growth trajectory.
Market sentiment towards Amazon is broadly bullish. Year-to-date, Amazon's stock has risen over 14%. Driven by optimism about corporate earnings and expectations of a potential end to Middle East conflicts, U.S. stocks rallied last Friday, pushing Amazon's share price higher and setting a new intraday high of $264.5. The market generally believes that Amazon's stock could rebound to new historical highs following the earnings report. Based on current options pricing, the market anticipates a potential post-earnings stock price movement of around 7% by the end of the week. Calculating from last Thursday's closing price, this could push the stock up to approximately $273, setting a new record high, or down to around $237 at the lower end of the range.
HSBC analysts recently expressed a bullish stance on Amazon ahead of the earnings report, citing strong Q4 AWS growth and robust performance in its U.S. and international retail segments. Analysts at JPMorgan and Bank of America raised their price targets for Amazon to $280 and $298, respectively, ahead of the report, expecting strong AWS demand in the first quarter. Morgan Stanley maintained an "Overweight" rating on Amazon, noting in a report that AWS is entering a phase of accelerated migration of AI workloads. The firm expects cloud revenue for 2026 to exceed market forecasts and emphasized that Amazon is one of the most direct beneficiaries of AI infrastructure build-out. Goldman Sachs raised its price target to $290, viewing the continuous improvement in advertising margins as a "second engine" for profit growth, forming a dual-driver development model alongside AWS.
Analyst sentiment is predominantly positive. Among 22 analysts tracked, 20 recommend a "Buy" rating, while two rate the stock as "Neutral." The average analyst price target is approximately $283.
Comments