Wall Street is bullish on Amazon earnings despite uncertainty around consumer spending, rising investment costs

• Wall Street analysts expect Amazon to deliver an earnings beat when it reports quarterly results on Thursday
• Expanding growth in Amazon's cloud platform is a bullish driver, analysts said.
• Yet, slowing consumer spending and investments by the company in other areas could be headwinds.

Wall Street is gearing up for Amazon to deliver strong quarterly financial results after the closing bell on Thursday, though uncertainty lingers about how the company might navigate a slowdown in consumer spending.

Most analysts anticipate solid earnings and further upside for Amazon stock, driven by its cloud platform and advertising strength. Yet, concerns linger over slowing retail margins and Amazon's rising investments in other areas of its business.

That includes Project Kuiper, Amazon's initiative to deploy thousands of satellites for an increased broadband network, as well as investments in AI.

Here's what analysts are saying ahead of the company's earnings.

CFRA: Searching for investment balance

CFRA considers Amazon a compelling multi-year profit and cashflow story, but the firm is cautious about near-term prospects.

"Growth may not be linear due to a tepid consumer spending environment, lumpy AWS deal volume, and accelerated investments in areas like Project Kuiper, generative AI, same-day fulfillment, and Prime Video digital content."

Analyst Arun Sundaram said this will translate into a "modest" third-quarter earnings beat. CFRA expects revenue to rise 10.5% year-over-year and GAAP operating profit to climb 36%. CFRA's estimates are at the upper end of Amazon's guidance range.

"Overall, investors will be looking for AMZN to strike the right balance of growth vs. investments," Sundaram said.

The note said that while Amazon's operating margins are expected to continue growing into 2025, reinvestment into other areas of the business will slow this expansion.

CFRA trimmed its Amazon price target to $219 a share on October 21, indicating 13% upside ahead.

Bank of America: Mixed results incoming

BofA's Justin Post suggested investors brace for a mixed bag of third-quarter results.

Bank of America views consensus revenue estimates as too high and predicts $157 billion for the quarter. However, the bank's outlook for operating profit stands above consensus views at $15 billion.

The bank expects the quarter's leading growth drivers will include Amazon Web Services, the firm's AI-led cloud-computing platform. According to Post, margins here will likely be better than Wall Street is expecting

"AI demand likely improved further in 3Q, and we think investors may be expecting 20% y/y growth for 3Q, which would suggest the largest 3Q in terms of sequential dollars added at $1.39bn," he said.

Consumer spending uncertainty could be a concern, and BofA expects a slight deceleration in discretionary retail sales growth.

The firm has a "buy" rating on the stock and a $210 price target, which implies an 8.3% gain from current levels.

JPMorgan: AWS acceleration leaves room for optimism

JPMorgan cited Amazon's expanding cloud platform and solid store growth as key reasons to be bullish on the stock.

The bank said easing optimizations, workload migrations, and AI's growing monetization will support further AWS acceleration through this year, leading to 20% growth year-to-date.

In line with Bank of America, the firm anticipates third-quarter net sales to reach $157 billion, below consensus estimates of $157.3 billion.

Meanwhile, retail profits in the last quarter faced headwinds, and consumers appear cautious about spending. Shoppers eager for a deal are weighing on Amazon's average selling prices, the bank said.

JPMorgan has an "overweight" rating on Amazon and a $230 price target. This suggests an 18.6% upside from current levels.

Wedbush Securities: Don't worry about rising investment costs

Wedbush Securities has cheered Amazon's growing cloud segment and a revenue shift toward high-margin advertising. Together, these should help offset headwinds brought on by the company's spending on investments elsewhere.

"We think the risk/reward is attractive heading into results as investor expectations for 2H profitability have moderated, AWS growth continues to accelerate, and advertising momentum is building into 2025," a team of analysts led by Scott Devitt wrote.

The firm said investors have toned down margin expectations due to Amazon's spending in new investment areas, such as Project Kuiper. While this may require more investment from the company over time, Wedbush doesn't expect it to impact profitability in the near-term.

Wedbush reiterated its "outperform" rating and $225 price target, implying a 16% gain from current levels.

Morgan Stanley: Bullish into 2025

Analysts led by Brian Nowak focused on Amazon's fourth-quarter guidance, suggesting that the company's earnings before interest and taxes might come in lower than expected.

"We see AMZN's high and growing focus on lower-priced, lower-margin essentials driving merchandise margin pressure... which is holding back the near-term slope of its N. America retail profit ramp. Expected discounting in a competitive holiday season (and picky discretionary consumer) create further near-term uncertainty," they said.

The bank expects fourth-quarter EBIT of around $17.5 billion, 1% below consensus expectations.

But looking forward to 2025, the bank recommends sticking with the stock as retail pressures will be a short-term headwind. Corporate efficiencies and shipping costs will make lower-priced essentials profitable for the company through next year, the bank projected.

Morgan Stanley has a $210 price target for the stock, representing upside of about 8% from Wednesday's share price.