Is the AI gamble worth it? Amazon.com, Inc. (AMZN.US) earnings to be revealed after the bell, AWS growth becomes the key validation

Amazon.com, Inc. (AMZN.US) will release its third-quarter earnings after the bell on Thursday, October 29, U.S. Eastern Time, and the market is closely watching whether its cloud business can replicate the strong growth of the previous quarter to lift its recently weak share price. As of press time, Amazon.com, Inc. was down 1.8% in premarket trading. The key to a stock rebound: can AWS deliver high growth again? Strong cloud business growth previously sent Amazon.com, Inc.'s shares surging after its last earnings release. On July 31, the e-commerce and cloud computing giant's second-quarter results showed that revenue at its cloud business AWS accelerated and grew faster than Wall Street expectations, driving the stock to its largest single-day gain since 2012. But the shares have since performed weakly, down 10% from their early-August high, as market concerns about AI trades, pressure from rising interest rates, and competition from AI services such as Meta Platforms' Muse all weighed on sentiment. So as Amazon.com, Inc. prepares to report third-quarter results, investors expect AWS to repeat last quarter's performance. Analysts expect revenue at the business to grow nearly 40% year over year in the quarter to US$45.7 billion. "A year ago, investors would have doubted whether they could do this," said Jed Ellerbroek, a portfolio manager at Argent Capital Management, which holds Amazon.com, Inc. shares. "I think we will see AWS deliver excellent results." A major test for cloud providers: can AI spending returns? Amazon.com, Inc.'s earnings release comes during a week packed with results from hyperscale cloud providers, with investors increasingly focused on whether massive AI infrastructure spending can deliver tangible returns. Anthropic PBC filed for an initial public offering (IPO) on Monday, helping ease market concerns about the health of AI trades and the scale of debtworries that have weighed on tech stocks in recent weeks. Microsoft Corporation and Alphabet both reported capital expenditure below expectations in their earnings releases late on Wednesday. Microsoft Corporation rose in premarket trading on Thursday after cloud revenue beat expectations, while Alphabet fell sharply after third-quarter profit and sales both missed analyst estimates. Wall Street expects Amazon.com, Inc. to deliver solid quarterly results: revenue up 12% to US$202 billion and net profit up 2% to nearly US$22 billion. Capital expenditure: the variable drawing more attention than results Beyond AWS performance, investors will also closely watch the company's capital expenditure. Amazon.com, Inc. raised its capital expenditure forecast last quarter, mainly due to high memory prices, and investors may not be surprised if it raises its spending outlook again this time. Analysts' expectations for 2026 capital expenditure have risen to about US$222 billion, with expectations for 2027 approaching US$290 billion. "We have to figure out where spending will peak and how durable that spending is," said Jake Behan, head of capital markets at Direxion, adding that this needs to happen in tandem with accelerating AWS revenue growth, that is, "from high growth to higher growth." Evercore ISI analyst Mark Mahaney believes how Amazon.com, Inc. reaches this level of AI spending may be more important to the stock than the quarterly results themselves. Meta's strong earnings last week were overshadowed by its financing needs, as investors grow increasingly worried that capital expenditure will hurt free cash flow and whether companies are financing AI buildouts through equity or debt. Amazon.com, Inc.'s free cash flow is expected to be negative this year and next. "Intensifying AI capital competition also raises the likelihood of large-scale equity financing," Mahaney wrote in an October 23 report. "We would not directly apply Meta's situation to Amazon.com, Inc., because we believe Amazon.com, Inc. is better prepared than most companies to finance AI buildouts (relying on debt rather than equity)." Hidden chips: Anthropic stake and US$500 billion in orders The market's optimistic reaction to Anthropic's IPO filing could also benefit Amazon.com, Inc., as its stake in Anthropic has boosted its profit in recent quarters. The IPO could value Anthropic at as much as US$1.75 trillion, and according to calculations by Oppenheimer & Co. analyst Jason Helfstein, every US$1 trillion increase in Anthropic's market value would bring about 7% growth to Amazon.com, Inc.'s current market value of about US$2.7 trillion. He wrote in a research report last week that Anthropic's IPO "will provide more disclosure on cloud providers' computing power demand, such as the roughly US$111 billion already committed to AWS." Amazon.com, Inc.'s disclosure of remaining performance obligations, and the pace at which those contract payments are collected, are equally crucial. Amazon.com, Inc.'s backlog amounted to nearly US$500 billion in the second quarter. Direxion's Behan said: "We have to understand whether Amazon.com, Inc.'s backlog is really supply-constrained, which we have seen elsewhere. How much monetization potential is there in these backlog orders?"