The Zhitong Finance App learned that Amazon (AMZN.US) had a strong start in 2024, and the profit report for the fourth quarter drove its stock price to rise sharply. However, as the first-quarter earnings report is about to be released, this could be the next catalyst for Amazon stock. Amazon currently leads the market in e-commerce and the cloud computing business of its Amazon Web Services (AWS) division. Meanwhile, the company is continuing to drive growth by focusing on artificial intelligence and a booming advertising business. However, the company, known as a “one-stop shop,” is currently engaged in a major antitrust battle with the US government and is likely to face serious regulatory challenges in the next few years.

Amazon Q1 Earnings Preview

The market expects Amazon's first quarter sales to increase 12% year over year to reach $142.6 billion. Analysts expect earnings per share to grow 170% to $0.84. Additionally, AWS's sales are expected to increase 15% year over year, with revenue of $24.56 billion, which will mark the division's first two consecutive quarters of accelerated growth since the fourth quarter of 2021.

After Microsoft and Google's parent company Alphabet released strong earnings reports, Amazon's performance was particularly remarkable. Microsoft reports that its Azure cloud business grew 31% year over year, while Alphabet's cloud revenue increased 28% year over year.

Stifel analyst Brad Reback mentioned in a customer newsletter that Microsoft and Google officials both pointed out that increased demand for artificial intelligence and the overall cloud helped the performance. He pointed out that AWS's performance will be “the last piece of the consumer problem in the first quarter.”

Looking ahead, Wall Street analysts are optimistic about Amazon's earnings outlook for fiscal 2024. According to FactSet data, the market expects Amazon's adjusted earnings per share to reach 4.19 US dollars in fiscal year 2024, a significant increase of 44% compared to $2.90 in 2023. This increase was achieved on the basis of Amazon's loss of 27 cents per share in 2022.

In terms of revenue, Amazon's 2024 forecast also shows strong growth. The market expects its revenue to reach 55 billion US dollars, an increase of 50% year over year. This growth rate has slowed from the 200% increase in 2023, but it is important to note that the sharp increase in 2023 was partly due to a 51% drop in revenue compared to 2022, to only US$12.25 billion.

Meanwhile, Amazon's total revenue in 2024 is expected to reach US$642.27 billion, an increase of 11.7% year over year. This growth rate is slightly lower than 11.8% in 2023, but it still shows a healthy growth trend compared to 9.4% growth in 2022.

Amazon's artificial intelligence and advertising business are in the spotlight

Amazon CEO Andy Jassy (Andy Jassy) emphasized Amazon's emphasis on generative artificial intelligence (GenAI) and its transformative potential in an annual letter to the company's shareholders, at a time when the company's stock price hit a new high.

In her letter, Jia Xi said that generative artificial intelligence may be the most significant technological revolution since the development of cloud technology and even since the birth of the Internet. He pointed out that unlike the shift from traditional local infrastructure to the cloud, the GenAI revolution was based on cloud computing platforms from the beginning, and its potential social and commercial value will be huge.

Market analysts predict that the rise of generative artificial intelligence will drive companies to invest more in cloud services, making Amazon, Microsoft, and Google the main competitors of AI computing hosting service providers.

Amazon announced in March this year that it will increase its investment in artificial intelligence startup Anthropic by $2.75 billion. Since the end of last year, the company's transactions with Anthropic have reached a total of $4 billion. Anthropic, the developer of the chatbot Claude, competed with OpenAI's ChatGPT, which sparked a generative AI boom at the end of 2022.

Amazon's move is seen as an effort to close the gap with Microsoft in the field of artificial intelligence. Microsoft's Azure cloud service followed suit and quickly adopted generative artificial intelligence technology. The report said that a few weeks after ChatGPT attracted widespread attention, Microsoft decided to invest $10 billion in OpenAI to deepen the strategic partnership between the two sides.

At the same time, the collaboration between AWS and Anthropic provides Amazon with a strong artificial intelligence partner. Furthermore, the Amazon Bedrock service launched by Amazon about a year ago allows AWS users to use a series of large-scale language models, including the latest Anthropic model, to build generative AI applications.

However, both Microsoft and Google have surpassed Amazon in the cloud business growth rate in the recent quarter, which shows that Amazon faces challenges in maintaining its position as a leader in the cloud services market.

The advertising business is also worth watching and is expected to be Amazon's fastest-growing division in the first quarter. According to FactSet data, advertising sales are expected to increase 23.5% year over year to reach $11.74 billion.

Amazon began adding video ads to its Prime service in late January, providing another growth point for the advertising business. The majority of ad revenue comes from display ads in its e-commerce marketplace.

Wedbush analyst Scott Devitt said in the preview report that he is looking forward to seeing the continued momentum of the advertising business, the acceleration of AWS growth, and the continued improvement of Amazon's profit margins in North America and international retail divisions.

Regulatory risk

Amazon is currently facing what is probably the toughest legal challenge in its 30 years of existence. The US Federal Trade Commission (FTC) and the attorneys general of 17 states joined forces to launch a major antitrust lawsuit against Amazon on September 26 last year. The case will closely monitor Amazon's market behavior and potential regulatory risks.

The FTC accuses Amazon of abusing its dominant market position to inflate prices and overcharge merchants. In response, Amazon strongly denied these accusations and stated in a statement that it believes the FTC's accusations are factually and legally wrong, and that the company looks forward to defending itself in court.

Furthermore, J.P. Morgan analyst Doug Ammus mentioned in a report on October 3 last year that although this lawsuit is expected, he believes it would be a major challenge to prove that Amazon illegally maintains its monopoly position in the market.

summed

Amazon's market capitalization has surpassed $1.8 trillion, making it one of the world's most valuable companies. The Seattle-based company recently surpassed its all-time high in 2021. However, Amazon is facing intense digital sales competition from Walmart (WMT.US) and Target (TGT.US), while also competing with Microsoft (MSFT.US) for the position of the leading generative artificial intelligence cloud platform.

Amazon's performance in the first quarter, the growth of its advertising business, and the performance of cloud computing services will be the focus of investors' attention. Additionally, Amazon CEO Andy Jassi's emphasis on generative artificial intelligence and the potential of this technology will also be an important topic of concern for investors.