To The Moon

Amazon Earnings Preview: Will AWS Spoil the Cloud Sector's Party Again?

$Amazon.com(AMZN)$   will announce its FY2025 Q3 earnings report after the market closes on October 30.

Core Financial Indicators

~Amazon's revenue is expected to be $177.72B for 2025 Q3, up 11.9% YOY;

~EPS is estimated to be $1.56, up 9.13% YOY.

~The company previously guided Q3 revenue of 174–179.5 billion, implying year-over-year growth of 9.5% to 13.0%, a moderate slowdown versus Q2. On profits, the company had guided Q3 operating profit of 15.5–20.5 billion, and results typically come in near the high end. The market expects $19.7 billion, up 13.15% year over year.

Three/Four Things to Watch

Global Retail Growth

The retail narrative hasn't changed much: U.S. e-commerce has historically grown faster than overall retail, and Amazon continues to benefit from this structural shift.

Within Amazon's e-commerce retail, advertising has been taking up a larger share year by year; Prime membership fees also enhance customer stickiness. Investors focus on advertising because, with its very low marginal costs, it is the main source of incremental profits for Amazon's retail segment. Based on the last earnings season, Amazon's advertising business grew faster than Google's and Meta's.

AWS Business

AWS Q2 revenue growth remained below 20%, at just 17.49%. Its remaining performance obligations (RPO) in Q2 were $195 billion, up only 3.17% quarter over quarter—far behind its competitors' pace.

AWS's Q2 operating margin saw a notable decline from the prior quarter, dropping from 39.45% in Q1 to 32.90% in Q2.

Wall Street generally believes the main bottleneck limiting AWS's growth is still insufficient compute capacity. But as long as the AI wave continues, strong demand should drive supply to ramp and an inflection in growth is likely; the uncertainty is when it will occur. More importantly, in the AI era, the question is whether AWS is losing some of its competitive advantage and could thereby jeopardize its position as the world's largest cloud provider—this is the longer-term, more critical issue.

Amazon says Blackwell pricing came online starting June 2025. B200 computing power pricing far exceeds H200, which will contribute additional cloud computing revenue.

Capital Expenditures

In Q2, Amazon's Capex rose further to $32.2 billion (per the definition disclosed in the company's cash flow statement, which differs slightly from the metric discussed on the earnings call), an all-time high, with year-over-year growth of 83%. Because Amazon ramped later in this AI investment cycle—unlike Microsoft, whose Capex growth has already begun to moderate—Amazon is now entering a peak and ramp-up phase of Capex spending. Correspondingly, in Q2 Amazon's depreciation as a share of revenue remained at a historically high level of over 9%. As Capex increases further, the drag from depreciation may become more pronounced.

In addition to data center expenses, Amazon's low Earth orbit (LEO) satellite broadband network plan, Project Kuiper, is also expected to contribute additional capital expenditures.

Option Market Signals

Options data show a put/call ratio of just 0.69, below its historical norm. Implied volatility is 42.23%, higher than historical (realized) volatility, indicating that near-term options are priced with a larger volatility premium than usual. Over the last 12 earnings releases, Amazon's average post-earnings move has been 5.99%.

Summary of Risks and Opportunities

~Potential Positive Catalysts: Advertising industry recovery

~Risks to Monitor: macroeconomic slowdown; cloud services supply chain risk; antitrust case

~Valuation:

Amazon's PE ratio is 34.60 times, which is at the 44th percentile of its historical range over the past five years.

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