(Bloomberg) — Amazon.com Inc.’s “show me” moment arrived Tuesday, with the company’s earnings becoming the latest litmus test for its appetite for big artificial intelligence spending.
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The message from investors so far is that stocks of companies that show progress in monetizing AI will be rewarded, while those that don't will be punished.
Last week's misfire by Meta Platforms Inc. triggered a roughly $400 billion drop in tech stocks amid concerns about the benefits of big spending on artificial intelligence. Subsequently, these concerns were allayed by the financial results announced by Alphabet Inc. and Microsoft Inc.
Amazon's report will bring scrutiny to web services sectors that use generative AI. Options traders were pricing in a nearly 8% move in either direction for the stock the day after the news broke, according to data compiled by Bloomberg.
Paul Marino of GraniteShares says, “What matters is AWS. How much market share they hold and what they're doing with AI to drive revenue.”
“Amazon has an incredibly stable retail business, which is great, and they're a dominant player. But what they're trying to do in the cloud, and what they're trying to do with AI. If what you're trying to do doesn't bear fruit, it doesn't mean anything. ”
Amazon's stock price fell as much as 1.4% on Tuesday, after rising 4% in the previous two trading days.
Amazon believes its generative AI cloud services have the potential to generate billions of dollars in revenue over the next few years, and is investing heavily in technology to power them.
How well the report is received will depend on how Amazon communicates its outlook, with Meta's weakness last week partly due to what investors saw as a lack of clarity. ing. This is important as traders are rapidly reassessing whether the Federal Reserve will cut interest rates this year.
“They didn't have a lot of clarity about what the next few quarters were going to look like, and they didn't have a lot of clarity about what advances in AI would mean for their companies from a profitability standpoint,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. It was not very clear whether it had any meaning.” Meta.
“I think there's a little bit less focus right now on the short-term performance of last quarter,” he added. “It's important what the guidance is, knowing that interest rates are going to rise for a long time.”
Read more: Alphabet's cash boom raises Wall Street's dividend expectations
The last few megacap financial reports have also focused on returning capital to shareholders. Google's parent company Alphabet's stock price rally last week also came after the company announced a new dividend and an additional $70 billion in stock buybacks during its earnings call.
This makes Amazon the last major tech company not currently offering a dividend. Investors are awaiting a possible announcement, along with a possible expansion of the share buyback program.
Amazon is a popular stock on Wall Street, with no analysts recommending it sell, according to data compiled by Bloomberg. The average price target implies an upside of at least 17% from current levels.
Still, if Amazon doesn't live up to expectations or make enough of a statement in the quarter, Meta's poor results could be an unpleasant example of where investor sentiment is right now. .
“Perfect pricing. This is an incredible company, a monopoly, and very macro-related. I just think it's over-owned,” says Robert W. Baird & Co. said Ted Mortenson, Managing Director of the Company.
“AWS needs to accelerate significantly,” Mortenson said, or Amazon stock will be sold.
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–With assistance from Jeran Wittenstein.
(Updates share movement in 7th paragraph.)
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