Amazon.com Inc (NASDAQ:AMZN) reported Q1 revenue of $143.3 billion, up 13% year-over-year, beating estimates. Earnings per share were 98 cents, recording a 25.64% surprise on the consensus of 82 cents.

The earnings beat was propelled by robust performance in AWS and its international business. AWS revenue growth surged to 17%, marking a significant acceleration.

CEO Andy Jassy noted a strong start to the year, attributing it to customer experience improvements and financial results. He also mentioned that AWS's growth rate is reaccelerating, with AWS now being a $100-billion annual revenue run rate business.

Related: Amazon Q1 Earnings Highlights: Revenue Beat, EPS Beat, AWS Hits $100-Billion Annual Run Rate And More

The Amazon Analyst

JPMorgan analyst Doug Anmuth maintains an Overweight rating on Amazon stock. He raised his price target for Amazon stock from $225 to $240. This target is based on about 28 times the estimated 2025 free cash flow (FCF) of $86 billion, which equates to around 21 times the estimated 2026 FCF of $108 billion.

The Amazon Thesis

Anmuth is doubling down on Amazon as he sees strong profit potential ahead, driven by accelerated growth in AWS and increasing demand for GenAI services.

Following Amazon's Q1 earnings report, Anmuth is particularly optimistic about the company's ability to expand its margins in both retail and cloud services.

Bullish On Capex Spends & Retail Margin Expansion

Despite plans to increase capital expenditures by 35% to $65 billion in 2024, Amazon aims to balance investments with improving operating margins. Anmuth believes that Amazon's scale and strong cash flow position allow for meaningful investments while expanding margins simultaneously. "There is healthy room for profitability improvement," he said.

Anmuth notes that Amazon's retail segment, excluding AWS, exhibited solid growth of 11.8% in Q1. He noted that the company "remains bullish on Retail margin expansion" pointing to 3 key drivers of efficiency:

1. improvements to inbound shipping
2. inventory placement
3. increased automation

The company also expects Prime Video to become a profitable business on its own.

GenAI Momentum To Lead To A Multi-Billion-Dollar Run Rate

AWS revenue growth accelerated in Q1, driven by increasing demand for cloud services and GenAI offerings. Going forward, Anmuth says, "AWS will meaningfully ramp AWS capex to capitalize on strong GenAI momentum." He pointed to tech infrastructure, datacenter capacity/power, silicon supply, networking equipment, and servers as key focus areas for this additional capex deployment.

Anmuth also estimates that GenAI services alone represent a "multi-billion-dollar revenue run-rate," indicating a significant revenue potential for Amazon.

JPMorgan's bullish outlook on Amazon reflects confidence in the company's ability to continue its growth trajectory while improving profitability. With a strong focus on cloud services and AI monetization, Amazon seems poised for further expansion in the coming years.

AMZN Price Action: Amazon's stock closed lower by 3.29% on Tuesday. However, the company reported an earnings beat post-market on Tuesday at $175.00. The stock was trading up by about 3.8% at $181.90 during the premarket session Wednesday.

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