Amazon Earnings: AWS Acceleration Leads the Way in Overall Good Results

Key Morningstar Metrics for Amazon

• Fair Value Estimate: $260
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Amazon’s Earnings

Amazon AMZN‘s third-quarter results beat the high end of guidance on the top line and would’ve beat it on the bottom line, save for $4.3 billion of unusual items. Sales grew 12% year over year in constant currency to $180.2 billion, while operating margin was 9.7% versus 11.0% a year ago.

Why it matters: Results are good, with upside on the top and normalized bottom lines, which is a good setup heading into the holiday season. The temperature on tariffs has eased as many trade deals have been forged, although China remains a work in progress. Consumer buying patterns are unchanged.

• Amazon produced upside in all segments relative to our model, with the most upside coming in AWS, third-party sellers, and online stores. Grocery is performing well, and same-day delivery is rapidly expanding, which should support good growth for several years.
• Excluding a $2.5 billion settlement with the FTC and $1.8 billion in severance, operating income would’ve been $21.7 billion, with 12.0% margin, versus the high end of guidance at $20.5 billion.

The bottom line: We raise our fair value estimate to $260 per share, from $245 previously, based on good results and guidance. The stock is jumping after hours, leaving shares fairly valued, in our view.

• AWS was strong, as growth accelerated to 20% year over year, a pace that CEO Andy Jassy thinks can continue for “a while.” As such, the firm is capacity-constrained and plans to accelerate expansion based on demand signals. Demand is very strong for artificial intelligence, but core workloads also performed well.
• Amazon detailed innovation within the AWS portfolio that is helping attract new customers. Anthropic’s use of Trainium 2, with its compelling price performance and the fact that Trainium 3 will arrive by the end of 2025, could extend AWS’ surging growth through next year.

Coming up: Guidance is slightly better than we anticipated for revenue and profitability, resulting in slight increases to our estimates over the next 18 months.