Amazon faces margin questions despite expected Q1 revenue beat

Amazon.com Inc (NASDAQ:AMZN) will report its first quarter earnings on April 29, with Bank of America analysts expecting results to be driven by continued strength in both its retail and cloud computing businesses, alongside growing contributions from artificial intelligence-related demand.

According to the analysts, Amazon is expected to report revenue of approximately $178.4 billion and operating income of $21.4 billion for the quarter, both modestly above Wall Street consensus estimates of $177.1 billion and $20.7 billion, respectively.

The bank attributed the expected upside primarily to stronger-than-anticipated performance in Amazon Web Services (AWS).

AWS is projected to grow around 28% year-on-year in the first quarter, above the broader market expectation of roughly 25%, with analysts pointing to accelerating enterprise demand and early contributions from AI workloads, including work associated with Anthropic. Bank of America estimated that Anthropic-related activity could add around $1.3 billion in quarterly AWS revenue.

In retail, underlying trends are also expected to show improvement. Card spending data cited by Bank of America indicates a three percentage point acceleration in online retail activity quarter-on-quarter, supporting expectations that North American retail revenue could come in 1% to 2% above consensus. This reflects continued gains in e-commerce penetration and stable demand conditions in core markets.

While revenue momentum appears broadly positive, margin trends are expected to be more mixed. The analysts highlighted potential pressure from expanding lower-margin AI infrastructure services, increased investment in Amazon's logistics and international operations, and pricing adjustments in fulfillment services. These headwinds may be partially offset by cost reductions from earlier workforce restructuring and strong underlying AWS profitability in core workloads.

Looking to the second quarter, expectations are for revenue guidance in the range of $185 billion to $190 billion, alongside operating income between $17.5 billion and $21.5 billion, implying a sequential decline in profitability at the midpoint. Bank of American noted that while demand indicators remain supportive, margin variability is likely to remain a key focus for investors.

Capital expenditure levels are also expected to remain elevated, with continued investment in cloud infrastructure and AI capacity, including partnerships and hardware development. Market commentary suggests investors will be closely watching how Amazon frames the expected returns on this spending over the medium term, particularly as competition intensifies across major cloud providers.

Amazon shares have risen around 9% year-to-date, outperforming the broader market, supported in part by investor optimism around its positioning in artificial intelligence and cloud computing, the analysts highlighted.

Shares traded hands at about $247 on Monday afternoon.