Hope for the holidays, underrated AI potential? Key takeaways from Amazon’s earnings report

Amazon (NASDAQ:AMZN) traded higher in the postmarket session on Thursday after showing off strong growth in the cloud computing, advertising, and subscription services businesses. Notably, the e-commerce giant smashed operating income expectations and also returned to profitability in the international segment.

Holiday cheer

Amazon’s (AMZN) outlook for the holiday quarter was also a spark for the stock. For Q4, Amazon (AMZN) sees sales landing in a range of $181.5 billion to $188.5 billion (midpoint $185.0 billion) for FQ4, vs. $186.4 billion consensus. Operating income is landing in a range of $16.0 billion to $20.0 billion (midpoint $18.00 billion) vs. $17.5 billion consensus.

“As we get into the holiday season, we’re excited about what we have in store for customers,” Chief Executive Officer Andy Jassy said in the statement.

Margin improvement

Amazon (AMZN) reported an operating margin of 11% for FQ3, vs. 7.8% a year ago and the consensus estimate of 9.3%. The company beat margin expectations for both the North America and international businesses. Amazon (AMZN) said it has its eyes on more ways to cut costs across fulfillment centers, which could help it lower transportation costs. The company is also using robotics in new ways to cut costs during the peak season.

AI upside

Amazon (AMZN) said the generative AI business is growing at a triple-digit rate and faster than AWS did at the same scale. During the earnings call, AMZN management highlighted the Rufus generative AI expert shopping assistant, project Amelia, and AI shopping guides as initiatives that show the company has an AI edge.

The strategic collaboration with Databricks to accelerate the development of custom models built was also called out as a way that AWS Trainium chips can be leveraged as the preferred AI chip to help customers improve price-performance when building generative AI applications.

Analyst reactions

Deepwater Asset Management’s Gene Munster: “$AMZN stock is likely 5% up because of operating income guidance for December of $16B-$20B, vs the Street at $17B. Typically, their op income mid-point is below the Street (and eventually they come at the high end of the range). This time the guidance midpoint is $18B is above the Street at $17B. If history repeats itself, they’ll likely come in closer to $20B.”

Seeking Alpha analyst Dan Victor: “An impressive earnings beat from the e-commerce and cloud-computing giant. As long as the economy remains resilient, Amazon is in a good spot to continue leveraging steady growth into accelerating profitability as a tailwind for shares to rally higher in 2025.”

Seeking Alpha analyst Yuval Rotem: “Amazon achieved the highest operating margin in its history, led by AWS, while growth across all key businesses met or exceeded expectations. This should reinforce investors’ confidence in Amazon’s ability to maintain double-digit growth without compromising its critical margin expansion story.”

Tale of the tape

Shares of Amazon were up 4.7% in the postmarket session, after peeling off 3.3% during regular trading on Thursday. AMZN trades comfortably above its 100-day and 200-day moving averages. Target (TGT), Walmart (WMT), Dick’s Sporting Goods (DKS), Macy’s (M), and Best Buy (BBY) all poked out minor gains.