TLDR
- Amazon beat Q1 earnings expectations with EPS of $2.78 vs. $1.63 estimated, on revenue of $181.5 billion
- AWS revenue grew 28% year-over-year to $37.6 billion — its fastest growth in 15 quarters
- Capex surged to $44.2 billion in Q1, up from $25 billion a year ago, compressing free cash flow to $1.2 billion
- Q2 operating income guidance midpoint of $22 billion came in below Wall Street’s $22.7 billion estimate
- AMZN stock fell around 1.4% Thursday despite the strong print, as investors focused on spending and guidance
Amazon posted a strong first quarter, but the stock couldn’t hold its gains. AMZN fell roughly 1.4% on Thursday morning after initially popping in after-hours trading Wednesday night.
The numbers themselves were hard to argue with. Amazon reported adjusted earnings of $2.78 per share on revenue of $181.5 billion. Wall Street had expected $1.63 per share on $177.3 billion in revenue.
AWS was the standout. Cloud revenue hit $37.6 billion, up 28% year-over-year, beating estimates of $36.9 billion. CEO Andy Jassy called it AWS’s fastest growth rate in 15 quarters.
But the reaction on Thursday told a different story.
The biggest concern for investors was capital expenditure. Amazon spent $44.2 billion on property and equipment in Q1, up from $25 billion in the same period a year ago. That spending has crushed free cash flow, which dropped to just $1.2 billion on a trailing 12-month basis — down 95% from the prior year.
Amazon did not raise its full-year capex outlook of $200 billion, which BofA analyst Justin Post called a positive. He raised his price target to $310 from $298 and kept a Buy rating.
Earnings Quality Raised Eyebrows
A chunk of Amazon’s headline net income of $30.3 billion came from a $16.8 billion pre-tax valuation gain tied to its Anthropic investment. Strip that out, and adjusted EPS lands closer to $1.56 — just below the Zacks consensus estimate of $1.60.
That kind of accounting-driven beat tends to make institutional investors cautious. When the headline number looks great but the underlying operations tell a more complicated story, the “sell the news” trade kicks in.
Q2 guidance also failed to impress. Amazon guided for revenue of $194 billion to $199 billion, above Wall Street’s $189 billion estimate. But operating income guidance of $20 billion to $24 billion put the midpoint at $22 billion — slightly below consensus of $22.7 billion.
AWS and AI Deals in Focus
The AI infrastructure story remains front and center. Amazon announced on April 20 that Anthropic committed to spending more than $100 billion on AWS over the next 10 years, including securing up to 5 gigawatts of Amazon’s Trainium chips.
Jassy said Amazon now has over $225 billion in revenue commitments for its Trainium chip.
Amazon also expanded its OpenAI partnership this week, making OpenAI’s models and Codex agent available through AWS. That came days after Microsoft and OpenAI said they had ended their exclusive arrangement.
Cantor Fitzgerald analyst Deepak Mathivanan wrote that “the AWS acceleration enabled by AI revenues is still in early stages,” adding there was “a lot to like” in the Q1 results.
AMZN stock is up around 12% year-to-date, well ahead of the S&P 500’s 4.7% gain over the same period.
Amazon’s operating margin hit a record 13.1% in Q1.
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