We’re raising our price target on Amazon by $50 after killer quarter
Shares of Amazon rose after the tech giant reported stronger-than-expected first-quarter results, driven by continued growth momentum at its Amazon Web Services unit. Revenue rose 17% year over year to $181.52 billion, beating analysts’ consensus estimate of $177.3 billion, according to LSEG data. Generally accepted accounting principles (GAAP) earnings per share rose 75% to $2.78, beating LSEG’s $1.64 forecast. But that’s not a great comparison because the results also included a pre-tax gain of $16.8 billion in non-operating income related to the company’s investment in Anthropic. Operating income rose 30% year over year to $23.85 billion, beating the $20.82 billion consensus estimate. Why we have it Amazon may be widely known for online shopping, but it’s its cloud business that really makes its living. Advertising is another fast-growing industry with high margins. Investment in strong e-commerce logistics infrastructure makes your online store the place to be. Prime offers free shipping, video streaming, and tons of other perks to keep users paying every month. Competitors: Walmart, Target, Microsoft, and Alphabet Last purchased: April 15, 2025 Start: February 2018 As a result, after a slow start to 2026, Amazon shares have rebounded, rising nearly 26% in April to hit all-time highs. What has changed? The market quickly realized that Amazon’s close relationship with Anthropic would likely fuel AWS’s growth and make management’s ambitious $200 billion capital spending program worth the spend. The rally set a high bar heading into Wednesday’s presser, but the company’s results clearly cleared that up, sending shares up nearly 4% in after-hours trading. Stepping back, we were pleased to see that Amazon achieved the highest operating margin quarter across any segment in the company’s history. Yes, AWS is an important part of the story, but margin improvement in North American and International operations shows the company is operating more efficiently and higher-margin revenue streams are gaining momentum. Amazon is pulling out all the stops and we’re raising our price target from $250 to $300 to reflect the latest results while maintaining our 1 buy equivalent rating. It was a big earnings night, with other names in the club: Alphabet, Microsoft and Meta Platforms also reporting quarterly results. AMZN 1Y mountain Amazon 1-year return Comment Revenue growth in the Cloud unit Amazon Web Services (AWS) rose 28.4% from 23.6% last quarter, generating $37.59 billion in revenue, beating estimates of $36.9 billion. This was the business’ fastest growth rate in the last 15 quarters. Both operating income and operating margin were also better than expected. The company’s in-house chip portfolio, including Graviton, Tranium, and Nitro, has driven annual revenue to more than $20 billion, up from more than $10 billion last quarter. Amazon’s custom chip business has been a huge success, allowing it to expand its infrastructure more cost-effectively and reduce its reliance on Nvidia. AWS recently formed multi-gigawatt partnerships with OpenAI and Anthropic to use Trainium chips. However, do not think that the relationship between AWS and Nvidia will be broken. CEO Andy Jassy said on the call that he has “tremendous respect” for the company and will “be a partner for as long as I can foresee and will always have customers who want to run Nvidia on AWS.” AWS’s backlog increased from $244 billion in the fourth quarter to $364 billion this quarter. And the new figure is actually an understatement because it doesn’t include the recently announced deal with Anthropic, valued at more than $100 billion. We argue that with such a large backlog, Amazon has the visibility to continue spending aggressively. As for the company’s remaining business segments, there were strong revenue increases across Online Stores, Subscription Services, Third-Party Merchant Services, Advertising and Other (which includes healthcare, licensing, co-branded credit cards and other businesses). We’d like to see improvements in Advertising and Third Party Merchant Services, as both are high-margin revenue streams. Only Physical Stores missed the forecast. By geography, North American sales rose 12% to $104 billion, beating the consensus estimate by about $1.8 billion. Operating margins increased 165 basis points compared to last year. In the international segment, revenue increased 19% year-over-year, beating consensus forecasts. Operating margins increased 55 basis points year over year. On the CapEx side, Amazon spent approximately $44.2 billion in the quarter; this is slightly above the consensus estimate of $43.95 billion. The company did not change its $200 billion capital expenditure target for this year. Guidance Amazon provided solid guidance for the second quarter. Note that these figures are generally conservative. The company expects net sales to increase 16% to 19% annually to $194 billion to $199 billion. The $196.5 billion midpoint is superior to the $188.96 billion consensus. Second quarter operating income is expected to be between $20 billion and $24 billion. That midpoint of $22 billion was in line with the consensus estimate of $22.64 billion. This guidance includes a $1 billion year-over-year increase in costs related to low-Earth orbit satellite network Amazon Leo. The guidance also takes into account increased transport costs due to fuel inflation, which are partially offset by recently introduced fuel and logistics-related fare surcharges. 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