According to Business Insider, Wall Street analysts are closely watching Amazon’s Q3 earnings for updates on AI progress amid recent layoffs and the ongoing AI race. The company is expected to report $177.7 billion in revenue and $1.57 EPS, with analysts expressing mixed views on Amazon’s AI positioning. BofA maintains a Buy rating with $272 price target, citing potential operating income upside, while JPMorgan noted concerns about Amazon’s generative AI strategy and AWS growth relative to competitors. UBS raised its price target to $279 despite anticipating “noise” from Amazon’s recent $2.5 billion FTC settlement. This earnings report comes as Amazon’s stock has gained just 4% in 2025, significantly underperforming other Magnificent Seven companies.
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The AWS Growth Conundrum
Amazon’s AWS faces a critical inflection point where historical cloud dominance no longer guarantees AI leadership. The 18-18.5% growth projections for AWS represent a significant slowdown from the 20-30% growth rates the division maintained for years. More importantly, this puts AWS behind Microsoft Azure and Google Cloud in the generative AI race, both of which have been more aggressive in bringing AI services to market. The concern isn’t just current growth rates but whether Amazon’s methodical approach to AI infrastructure will allow competitors to establish unassailable moats in specific AI service categories.
The Reality Behind AI Infrastructure Spending
Amazon’s massive data center investments represent a fundamental bet that AI will follow the same pattern as cloud computing – where infrastructure ownership translated into long-term competitive advantage. However, AI workloads differ significantly from traditional cloud computing. While Amazon is spending billions on AI chips and data centers, the real question is whether they’re building the right kind of infrastructure. Nvidia’s recent earnings suggest AI training demand may be peaking, while inference workloads – where most long-term value lies – require different architectural approaches. Amazon’s challenge is balancing current AI training infrastructure with future inference needs.
The Retail-AI Integration Challenge
Amazon’s most significant AI advantage should theoretically be its massive retail ecosystem, yet the company has struggled to translate this into compelling AI products. While competitors focus on foundational models and developer tools, Amazon’s Alexa AI refresh represents a potential consumer-facing breakthrough. The integration of advanced AI into Amazon’s retail, advertising, and logistics operations could create synergies that pure-play cloud providers cannot match. However, execution risk remains high – previous attempts to monetize Alexa have yielded limited success, and the timeline for meaningful revenue contribution from consumer AI remains uncertain.
The Margin Compression Risk
Amazon’s AI investments come at a time when the company faces multiple margin pressures. The FTC settlement, potential tariff impacts, and ongoing retail competition create a perfect storm for operating margin compression. While analysts focus on operating income upside potential, the reality is that AI infrastructure requires massive capital expenditure with uncertain returns. The risk isn’t just whether Amazon can grow AWS revenue, but whether they can maintain cloud margins while funding AI development and competing with Microsoft and Google’s aggressive pricing strategies.
Wall Street’s Shrinking Patience
The 4% year-to-date stock performance reflects growing investor impatience with Amazon’s AI narrative. Unlike previous technology transitions where Amazon quickly established leadership, the AI race has seen the company playing catch-up. Wall Street’s concern isn’t just current performance but strategic positioning. With Microsoft integrating AI across its enterprise software stack and Google leveraging its research leadership, Amazon risks being perceived as an infrastructure provider rather than an AI innovator. The coming quarters will determine whether Amazon’s methodical approach to artificial intelligence pays off or whether the company needs a more aggressive strategic pivot.
