<\/p>\n
Amazon (AMZN) stock blasted off post-earnings as Wall Street celebrated evidence that its whopping artificial intelligence (AI) spending was producing a measurable payoff.\u00a0<\/p>\n
For the most part, investors were bracing for another quarter marred by fears of capital expenditure and questions about whether AWS could grow quickly enough to justify the buildout.\u00a0<\/p>\n
Instead, cloud sales rose sharply, operating profit expanded, and backlog climbed to a record level.<\/p>\n
On the flip side, as I reported on Alphabet (GOOGL), Amazon\u2019s cash flow deteriorated as infrastructure spending soared.\u00a0<\/p>\n
However, backed into a corner, Amazon delivered its strongest growth numbers in years.<\/p>\n
That shift led JPMorgan to reassess the stock\u2019s earnings power and the durability of its AI investment cycle.\u00a0<\/p>\n
At the heart of the reset is a question of whether AWS can convert booming demand into sufficient long-term profit to outweigh Amazon\u2019s severe near-term cash burn.<\/p>\n
AWS and AI growth shine as JPMorgan raises its Amazon stock price target after earnings<\/p>\n
Noah Berger Getty Images<\/p>\n
Why JPMorgan sees an AWS inflection, not just an earnings beat\u00a0<\/p>\n
JPMorgan analyst Doug Anmuth bumped Amazon\u2019s price target to $365 from $330, retaining an Overweight rating and keeping the stock in his Best Idea list.\u00a0<\/p>\n
For context, that is nearly a 34.4% upside from current prices.<\/p>\n
The bank\u2019s thesis centered on Amazon\u2019s breathtaking top-line growth.<\/p>\n
More AI:<\/p>\n
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Amazon\u2019s overall sales were up 20%, its fastest growth in 20 quarters, while its cloud behemoth AWS grew 37%, its fastest rate in 18 quarters.\u00a0<\/p>\n
More importantly, AWS backlog reached $496 billion, rising 36% sequentially and nearly 2.5 times year over year, offering investors a ton of visibility into future cloud sales.<\/p>\n
On top of that, AWS\u2019s AI and custom-chip businesses, spearheaded by its Graviton CPU, posted an eye-catching $25 billion annual sales run rate. Growing at a triple-digit clip.<\/p>\n
Additionally, AWS’s operating income surged 64% to $16.6 billion, while its operating margin expanded to 39.4%. Hence, AWS carried nearly 61% of Amazon\u2019s consolidated operating profit, despite accounting for one-fifth of revenue.<\/p>\n
For perspective, though, AWS\u2019s 37% growth was the slowest among the cloud czars, trailing Microsoft Azure and other cloud services at 43% and Google Cloud at 82%.\u00a0\u00a0<\/p>\n
Consequently, Anmuth and his team argue that Amazon is showing concrete evidence of booming AI demand rather than simply making promises.\u00a0<\/p>\n
That\u2019s why they\u2019re comfortable assigning a lofty 32-times multiple to 2027 earnings, which would require at least a 10% increase in their previous EPS estimate to $11.41 to support a $365 price target.\u00a0<\/p>\n
How much did Amazon stock gain after earnings?<\/p>\n
Amazon reported Q2 earnings after the market closed on July 30.<\/p>\n
Following the release, the stock surged 15.3% on July 31, closing at $271.58, its biggest one-day gain since 2012, according to WSJ reporting.<\/p>\n
After Amazon’s stock shot up, the rally added roughly $388 billion in shareholder value, with its market cap at $2.95 trillion, according to CompaniesMarketCap.<\/p>\n
According to Seeking Alpha data, Amazon shares gained 17% over the past week and 14% over the past month, outperforming the S&P 500\u2019s 1% gain and 0.1% decline, respectively. The stock is also up 18% year-to-date, versus a 9.4% increase for the S&P 500.<\/p>\n
Does Amazon\u2019s earnings guidance support the bull case?\u00a0<\/p>\n
For Amazon investors, forward guidance left a lot to be desired.\u00a0<\/p>\n
Amazon expects Q3 sales of $197 billion to $202 billion, representing 9% to12% growth, and operating income of $22.5 billion to $26.5 billion.\u00a0<\/p>\n
However, it\u2019s important to note that Prime Day moved into Q2, which creates a tough comparison. Amazon said Q3 growth would be almost 4 percentage points higher after excluding the timing effect from both years.\u00a0<\/p>\n
The bigger challenge, though, is CapEx.<\/p>\n
Amazon bumped its 2026 CapEx to nearly $220 billion from $200 billion, driven by higher memory costs. However, even at that level, CEO Andy Jassy said Amazon would face capacity constraints.\u00a0<\/p>\n
\u201cThe higher cost of memory is pushing this number up from our prior estimate of about $200 billion. Even at that amount, we will still not have enough capacity to meet all the demand we have in 2026, and I believe this dynamic will also be true in 2027, too,\u201d he said.<\/p>\n
Nevertheless, that spending pushed its trailing-12-month free cash flow from a positive $18.2 billion figure a year ago to a $7.6 billion outflow.<\/p>\n
Amazon linked that to a massive $66.1 billion year-over-year increase in property and equipment purchases, net of proceeds and incentives.\u00a0<\/p>\n
Although operating cash flow remained strong, rising 33% to $161.4 billion, infrastructure spending consumed far more cash than the business generated after capital investment.<\/p>\n
Be that as it may,<\/p>\n
JPMorgan\u2019s position is that the cash-flow deficit is essentially a timing mismatch instead of a failure on the tech giant\u2019s part.\u00a0<\/p>\n
Amazon spends roughly 2 years on data centers before it starts generating revenue. Jassy said those facilities operate for around 30 years, while AI servers can recoup their costs in less than three years and continue generating profits afterward.\u00a0<\/p>\n
For the bull case to hold, the committed demand needs to convert into sales quickly enough for AWS growth and operating profits to offset the increase in depreciation.<\/p>\n
Wall Street price targets for Amazon stock after earnings<\/p>\n
Most Wall Street firms remained relatively bullish on Amazon stock post-earnings, broadly celebrating Amazon\u2019s AWS acceleration.<\/p>\n
Goldman Sachs was perhaps the most upbeat of the lot, arguing that the tech giant deserved a far more substantial re-rating, and not just higher earnings estimates.\u00a0<\/p>\n
On the flip side, Bank of America was much more cautious than Goldman Sachs about Amazon\u2019s AI growth. It’s looking for much more evidence that the company can effectively translate its tremendous AI spending into strong, lasting cash flow.<\/p>\n
Goldman Sachs: $375, raised from $335 with a Buy rating, on the back of stronger AWS growth, AI demand, and advertising momentum, boosting Amazon\u2019s earnings outlook.Truist Securities: $350, raised from $320 with a Buy rating following Amazon\u2019s results, underscoring greater confidence in cloud growth and AI infrastructure demand.Morgan Stanley: $335, raised from $330 with an Overweight rating after AWS posted accelerating growth, stronger bottom-line numbers, and an improved backlog.RBC Capital: $330, raised from $320 with an Outperform rating, citing Amazon\u2019s accelerating AWS growth following the quarter.Bank of America: $320, raised from $310 with a Buy rating after Amazon\u2019s cloud business comfortably exceeded expectations.Wall Street consensus: $320.18, representing 17.9% upside, according to Seeking Alpha\u2019s analyst-consensus data.
\nSources: MarketBeat, Investing, Seeking Alpha.
\nInvestor Takeaway on Amazon stock<\/p>\n
Amazon bulls are compelling investors to cut through the noise of all the cash flow troubles and focus on the economic value created by AI.<\/p>\n
That argument has a lot of merit because, especially with AWS, it doesn\u2019t seem like the company is spending defensively to protect a fading cloud franchise.<\/p>\n
In fact, it is investing in demand that already exceeds available capacity.\u00a0\u00a0<\/p>\n
Nevertheless, investors shouldn\u2019t treat the post-earnings rally as essentially proof that the capital spending cycle is de-risked.\u00a0<\/p>\n
For now, the most important indicators to focus on are AWS growth, cloud operating margins, backlog conversion, and free cash flow direction. <\/p>\n
Additionally, it is also important to monitor whether Amazon\u2019s custom chips lower computing costs, whether AI customers expand usage after initial deployments, and the management\u2019s ability to eventually reduce capital spending as a percentage of sales.<\/p>\n
Hence, for those invested in Amazon stock, it might not be wise to chase the stock following a post-earnings pop. Those looking to wager on the tech giant should probably wait for a better entry point.<\/p>\n
Liz Thomas: \u2018The S&P hasn\u2019t peaked yet\u2019 \u2014 what to buy now (19:23) <\/p>\n
Related: Overlooked AI stock is growing faster than Nvidia<\/p>\n
#JPMorgan #resets #Amazon #stock #target #payoff<\/p>\n","protected":false},"excerpt":{"rendered":"
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