Amazon (AMZN) will announce its third-quarter financial results on Wednesday, October 29. The technology giant is expected to deliver solid growth in Q3, driven by ongoing strength across its businesses and solid artificial intelligence (AI)-driven momentum.
While higher capital expenditure concerns have weighed on AMZN stock's performance, three key factors could help it deliver solid Q3 growth and support its bull case.
More News from Barchart
1. Amazon's AWS to Sustain Solid Momentum in Q3
Amazon Web Services (AWS) is expected to sustain its robust growth trajectory in Q3, supported by rising demand for both AI and traditional cloud services. Continued cloud adoption and expanding AI workloads are likely to remain key drivers of segment revenue.
In Q2, AWS revenue reached $42.2 billion, up 36.7% year over year (YOY). Its backlog also grew significantly to $496 billion, indicating strong demand for its services and providing visibility into future revenue.
AWS' annualized revenue run rate has hit $169 billion. This is expected to rise further in Q3 as businesses continue migrating workloads to the cloud and expanding their use of AWS's core services. At the same time, growing AI adoption is driving additional demand for computing power, storage, networking, and other cloud resources.
Amazon's custom chips business is also growing strongly, with an annualized revenue run rate exceeding $25 billion and increasing at a triple-digit rate year over year. Its AI business has reached a similar milestone, with an annualized revenue run rate of more than $25 billion and triple-digit YOY growth.
AWS also reported $16.6 billion in operating income in Q2, reflecting its strong financial performance. With demand for cloud computing and AI continuing to rise, the segment is well positioned to sustain growth and deliver solid profitability in Q3.
2. E-Commerce Expansion and Operational Improvements to Drive Profitability
Amazon's e-commerce business continues to grow, driven by its extensive product offerings and fast delivery services. Alongside this growth, the company is focusing on streamlining its fulfillment processes to improve operational performance and control costs.
Amazon is improving inventory placement, shortening delivery routes, reducing package handling, and improving shipment consolidation. These measures aim to lower fulfillment costs while preserving Amazon's competitive advantage in delivery speed and convenience.
Automation and robotics are strengthening its operational efficiency. Amazon plans to more than double the number of robotic arms deployed across its fulfillment network, potentially increasing productivity and reducing operating costs as order volumes rise.
Overall, continued e-commerce revenue growth and improved fulfillment efficiency are expected to contribute to Amazon's profitability and support bottom-line growth in Q3.
3. Amazon's Advertising Business to Soar Higher
Amazon's advertising division is expected to continue delivering strong growth in the third quarter, supporting profitability. This high-margin business delivered $19.8 billion in revenue in Q2, up 26% YOY, reflecting sustained demand across its advertising platforms.
Sponsored Products will continue to be AMZN's key driver of revenue expansion. Meanwhile, Amazon is broadening product discovery through conversational and AI-powered experiences, which could create additional opportunities for advertisers to reach consumers.
Engagement with advertising on Prime Video is also gaining traction, particularly around live sporting events. These developments are expanding Amazon's advertising inventory and strengthening the segment's potential to generate incremental revenue and support overall profitability.
The Bottom Line: AMZN Stock Looks Attractive Ahead of Q3 Earnings
Amazon appears well-positioned to post solid growth in the third quarter, supported by momentum across its businesses. AMZN projects Q3 net sales of $197 billion to $202 billion, representing YOY growth of 9% to 12%. Operating income is expected to reach $22.5 billion to $26.5 billion, up from $17.4 billion in Q3 2025.
Analysts expect Amazon to generate earnings of $2.01 per share in Q3, up 3.1% from the prior year. The elevated capital spending could constrain earnings growth in the near term.
While AMZN's bottom line growth could remain muted in the short term, it is expected to improve considerably in 2027. Analysts project a 41% increase in Amazon's bottom line in 2027. This expected acceleration in profitability supports AMZN's high valuation relative to industry peers.
Overall, analyst sentiment toward Amazon remains positive, with Wall Street assigning the stock a "Strong Buy" rating ahead of its Q3 earnings announcement.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
