(Bloomberg) — Amazon.com Inc.’s “show-me” moment will come Tuesday when its earnings become the latest litmus test on its appetite for massive artificial intelligence spending.
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The message so far from investors: Shares of companies that demonstrate progress in monetizing AI will be rewarded, while the stock prices of companies that don’t will be punished.
Last week’s failure by Meta Platform Inc. triggered a selloff of nearly $400 billion in tech stocks amid concerns about the benefits of heavy spending on artificial intelligence. Later results from Alphabet Inc. and Microsoft Corp. eased those fears.
When Amazon reports, the scrutiny will be on its Web services segment, where it uses generative AI. Options traders are up about 8% in either direction for the stock a day after the report, according to data compiled by Bloomberg.
“It’s all about AWS, how much market share are they maintaining and then what are they doing in AI to increase profits,” said Paul Marino of GraniteShares.
“Amazon has an incredibly stable retail business and that’s all great and they’re a major player – but none of that means anything if what they’re doing is in the cloud, and what they’re doing with AI. Going to do it, it doesn’t make any sense. bear fruit.”
Amazon shares are slightly higher in early trading Tuesday.
Amazon believes that generic AI cloud services can generate billions in revenue in the coming years, and has invested heavily in technology to scale it.
Critical to how well its report is received is how Amazon communicates its vision, with Meta’s meltdown last week partly down to what investors perceived as a lack of clarity. This is important at a time when traders are increasingly reevaluating whether the Federal Reserve will cut interest rates this year.
“They weren’t very clear about what the next few quarters would look like, they weren’t very clear about what the AI ​​benefits would mean for them in terms of profitability,” said Brian Mulberry, client portfolio manager at Zacks Investment Management Inc. ” Of meta.
“I think the focus right now is a little less on near-term results than last quarter,” he said. “It’s more about what your guidance looks like, knowing that interest rates will remain high for a longer period of time.”
Read more: Alphabet’s cash boom is raising dividend expectations on Wall Street
The last few megacap earnings reports have also focused on the return of capital to shareholders. The surge in Google parent Alphabet’s share price last week was also driven by the announcement of a new dividend and an additional $70 billion buyback in its earnings release.
This makes Amazon the last big tech company that does not currently offer a dividend. Investors are awaiting a possible announcement as well as a possible expansion of its buyback program.
Amazon is well-liked by Wall Street, with no analysts recommending a sale, according to data compiled by Bloomberg. The average price target implies an upside of more than 17% from current levels.
Still, if Amazon doesn’t meet expectations in the quarter or fails to deliver solid-enough commentary, Meta’s earnings decline offers an uncomfortable example of where investor sentiment currently stands.
“It’s priced to perfection. It’s an incredible company, it’s a monopoly and a very mega-crowded company. Robert W. Baird & Company, Inc. “I think there’s a lot of ownership of it,” said Ted Mortenson, managing director.
“AWS needs to see material upside,” Mortenson said, “or Amazon stock will be sold off.”
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Earnings are due on Tuesday
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