Bank of America is bullish on Amazon ahead of Q3 earnings: Retail sector expected to outperform, cloud services outlook becomes more optimistic

According to the Zhitong Finance APP, Bank of America recently released a research report, forecasting Amazon.com Inc. (AMZN.US) third-quarter earnings, stating that the retail segment is expected to perform strongly, and the outlook for Amazon Web Services (AWS) is becoming more optimistic. Amazon will release its earnings report after the market closes on October 30. Third Quarter Performance Preview: Retail Performance and Outlook Expected to be Robust The bank expects that there is upside potential in Amazon's retail segment, with third-quarter revenue expected to be $179.2 billion, 1% higher than the market expectation of $177.7 billion. For Amazon Web Services (AWS), the bank estimates third-quarter revenue to be $32.3 billion (a year-on-year increase of 17.7%), which is basically in line with the market expectation of $32.4 billion (a year-on-year increase of 18.0%). Bank of America believes that due to healthy retail sales, strong performance in online advertising, and the layoffs at Amazon Web Services in July, there is a possibility of exceeding expectations for Amazon's operating profit: the estimated Generally Accepted Accounting Principles (GAAP) operating profit for the third quarter is $20.4 billion, which is 4% higher than the market expectation of $19.7 billion. The bank assesses that market expectations are as follows: U.S. retail segment revenue may exceed market expectations by 1%-2%; based on third-party (3P) data, the year-on-year growth rate for Amazon Web Services may be 18%-18.5%; operating profit is slightly above the upper limit of Amazon's third-quarter performance guidance range. In addition, Google (GOOGL.US) and Microsoft (MSFT.US) will release their earnings the day before Amazon's earnings report, and their performance may affect market expectations for Amazon's cloud services and advertising revenue. North American Retail Segment Data Shows: Growth Momentum Exceeds Market Expectations Bank of America (BAC) has compiled credit and debit card data showing that Amazon's online spending growth accelerated in the third quarter; Bloomberg Second Measure's credit and debit card data also shows the same trend. Currently, the market expects that Amazon's North America (N.A.) retail segment year-on-year growth will slow by 1 percentage point compared to the second quarter, while third-party data indicates that Amazon's North America retail segment growth may exceed market expectations by 1%-2%. For the fourth quarter, third-party data shows that the boost from "Prime Big Deal Days" is relatively limited, but Bank of America's credit card data shows that Amazon's online spending averaged a year-on-year increase of 8.9% during that week, demonstrating robust performance. Fourth Quarter Outlook: Performance Guidance May Pose Slight Obstacles to Stock Price The bank expects the strong momentum in North American e-commerce to continue, while the growth rate for Amazon Web Services may slightly accelerate. The bank estimates the fourth-quarter revenue guidance to be $202 billion to $209 billion, with the market consensus expectation at $208 billion. The midpoint of the guidance corresponds to a quarter-on-quarter growth rate of 15.5%, with a quarter-on-quarter growth rate of 14% for the fourth quarter of 2023 and 16% for the fourth quarter of 2024; the operating profit guidance is expected to be $18 billion to $22 billion, with the market consensus expectation at $23.7 billion Previously, Amazon stated that the midpoint of its fourth-quarter performance guidance would be 3% higher than the third quarter of last year; based on data from logistics research firm MWPVL, the bank believes that the efficiency improvement cycle in the retail sector this holiday season will continue. Historically, Amazon's fourth-quarter performance typically exceeds guidance expectations, and the better-than-expected performance in the third quarter may lead to an upward adjustment of the fourth-quarter performance guidance range. Expecting a shift in communication tone for Q4 Amazon Web Services; maintaining a buy rating Amazon's stock price has risen 1% year-to-date, while the S&P 500 index has increased by 15%, due to investor concerns about Amazon Web Services' positioning in artificial intelligence. However, Amazon's "Rainier Project" capacity is expected to be released in the first half of 2026, with a significant acceleration in order backlog growth last quarter, and its core AI partner Anthropic is experiencing rapid growth; the bank believes that Amazon is likely to more clearly highlight AWS's capacity advantages and the benefits of the Trainium3 chip in 2026. Additionally, there may be motives to boost market sentiment and create momentum for the December AWS re:Invent conference. Amazon's expected enterprise value/EBITDA multiple for 2026 is 12.6 times, lower than the 10-year average of 16.4 times; the expected price-to-earnings ratio (PE) for 2026 is 29 times, roughly in line with Microsoft's (28 times), and at a discount compared to Walmart's (36 times), with this discount expected to widen further in 2027 (Amazon's expected PE for 2027 is 24 times)