Financial Report Outlook | Amazon.com, Inc. (AMZN.US) AWS Challenges Intensify, Trade War Shadows Loom

Amazon.com, Inc. (AMZN.US) will announce its second-quarter earnings after the closing of the US stock market on July 31 (Thursday). Analysts expect Amazon.com, Inc.'s second-quarter revenue to reach $162 billion, a 9.5% increase year-over-year, demonstrating continued expansion even compared to last year's strong performance. The market expects operating profit to be $16.7 billion, a 13.8% increase from the same period last year. The operating profit margin is expected to increase from 9.9% to 10.6%. Earnings per share are expected to be $1.33, an 8.1% increase year-over-year. Amazon.com, Inc.'s own guidance indicates revenue will be between $159 billion and $164 billion. Management also expects operating profit to be between $13 billion and $17.5 billion, with this expanded range reflecting ongoing uncertainty. The general expectation on Wall Street is in line with the high end of management guidance, indicating analysts are confident in Amazon.com, Inc.'s ability to handle current market challenges in the second quarter. Driven by the demand for artificial intelligence infrastructure and applications, Amazon.com, Inc.'s web services (AWS) and advertising businesses will continue to be growth engines for the company. It is expected that the year-over-year growth rate of these two departments will reach 17%, far exceeding the overall company growth rate. Meanwhile, the online store, which accounts for a third of total revenue, is expected to grow at a more moderate rate of 6%. In the current environment of escalating global uncertainty, market participants will closely monitor e-commerce sales for clues about consumer sentiment. AWS cloud business faces increasing competition AWS remains key to the company's profitability, contributing 19% of total revenue. The cloud division is expected to grow by 17.4% year-over-year in the second quarter. However, AWS is facing growing pressure from competitors. Microsoft Corporation's Azure and Alphabet Inc. Class C Cloud have been actively competing for market share, leading to AWS' dominance slipping from 33% in the first quarter of 2022 to 29% in the first quarter of 2025. The company announced layoffs in the AWS department last week and plans for further reductions in the coming years. Management believes that artificial intelligence can automate many existing tasks, supporting Amazon.com, Inc.'s key strategy to expand AWS operating profit margins and increase overall profitability. AWS achieved a record operating profit margin of 39.5% in the first quarter. Investors will closely watch whether it can maintain this level while resisting competitive pressures from rivals. Trade policy uncertainty poses obstacles Amazon.com, Inc. faces significant challenges from the evolving trade policies. The e-commerce giant's product procurement is global, but 60% of its revenue comes from North America, making it vulnerable to changes in tariffs. Management has highlighted the "tremendous uncertainty" brought about by trade policies in previous earnings conference calls. Investors will seek clear information on how Amazon.com, Inc. plans to address these challenges. Tariff increases present Amazon.com, Inc. with difficult choices. Absorbing costs will harm profit margins, while passing costs on to consumers could reduce purchasing power and sales. The complexity of changing trade rules also adds to management burden. Amazon.com, Inc. must continually adjust pricing strategies and supply chain management to maintain compliance and competitiveness. AI opportunities beyond cloud services In addition to AWS, Amazon.com, Inc. has many opportunities to commercialize artificial intelligence. The company's vast customer database provides rich material for improving advertising algorithms and targeting, potentially increasing profitability by improving conversion rates and increasing advertiser spending. AI can significantly enhance inventory management and logistics operations. These improvements may help Amazon.com, Inc. reduce costs, enhance customer experience, and shorten delivery times. The company's launch of Alexa+ highlights its focus on consumer AI products. If Alexa+ succeeds, it could potentially bring new sources of revenue beyond traditional e-commerce and cloud services. Analysts remain generally optimistic Wall Street analysts generally have a positive view of Amazon.com, Inc. 69 out of 73 analysts have given the stock a "buy" or "strong buy" rating. The average target price has increased from $240 after the first-quarter earnings announcement to $251.34, but still below the peak around $266 in March. This implies a potential 10% upside from recent trading levels.