Amazon Q1 Earnings Beat Expectations as AWS Growth Accelerates

Shares of Amazon rose after the tech giant reported stronger-than-expected first-quarter results, driven by a continued acceleration of growth in its Amazon Web Services unit. Revenue increased 17% year over year to $181.52 billion, beating the consensus analyst estimate of $177.3 billion, according to LSEG data. Earnings per share based on generally accepted accounting principles (GAAP) increased 75% to $2.78, beating the $1.64 estimate, per LSEG. However, it's not a great comparison because the results included pre-tax gains of $16.8 billion in non-operating income related to the company's investment in Anthropic. Operating income increased 30% year over year to $23.85 billion, beating the $20.82 billion consensus forecast.

Why we own it

Amazon may be widely known for online shopping, but its cloud business is the real breadwinner. Advertising is another fast-growing business with high margins. Investment in robust e-commerce logistics infrastructure makes its online storefront 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

Most recent buy: April 15, 2025

Initiated: February 2018

Bottom line

After a slow start to 2026, Amazon stock has come back to life, gaining roughly 26% in April to new all-time highs. What changed? The market quickly realized that Amazon's close relationship with Anthropic would likely spur AWS growth, making management's ambitious $200 billion capex program well worth the spend. The rally set a high bar heading into Wednesday's print, but the company's results resoundingly cleared it, sending shares up about 4% in after-hours trading.

Stepping back, we were pleased to see Amazon deliver its highest operating margin quarter across all segments in company history. Yes, AWS is a crucial part of the story, but the margin improvement across North America and International operations shows the company is operating more efficiently, and high-margin revenue streams have momentum. Amazon is firing on all cylinders, and we are increasing our price target to $300 from $250 to reflect the latest results while maintaining our 1 rating.

Revenue growth at cloud unit Amazon Web Services (AWS) accelerated to 28.4%, from 23.6% last quarter, leading to revenue of $37.59 billion, beating estimates of $36.9 billion. This was the business's fastest growth rate in 15 quarters. Both operating income and operating margin were better than expected, too. The company's portfolio of in-house chips, such as Graviton, Tranium, and Nitro, exceeded a $20 billion annual revenue run rate, up from more than $10 billion last quarter. Amazon's custom chip business has been a huge success, allowing it to scale out its infrastructure more cost-effectively and reduce its reliance on Nvidia. AWS recently secured multi-gigawatt partnerships with OpenAI and Anthropic to use Trainium chips. But do not think the relationship between AWS and Nvidia is going away. CEO Andy Jassy said on the call that he has "immense respect" for the company and "will be partners for as long as I can foresee, and will always have customers who want to run Nvidia on AWS."

The AWS backlog closed the quarter at $364 billion, up from $244 billion in the fourth quarter. And the new figure is actually understated because it does not include the recently announced deal with Anthropic, valued at over $100 billion. With a backlog this large, we argue Amazon has the visibility to keep spending aggressively.

As for the rest of the company's business segments, there were solid revenue beats across Online Stores, Subscription Services, Third-Party Seller Services, Advertising, and Other (which includes health care, licensing, co-branded credit cards, and other businesses). We like to see the beats in Advertising and Third-Party Seller Services because both are high-margin revenue streams. Only Physical Stores missed its estimate. By geography, North America sales increased 12% to $104 billion, beating the consensus estimate by about $1.8 billion. Operating margins expanded 165 basis points over last year. In the International segment, revenue increased 19% year over year, beating the consensus estimate. Operating margins were up 55 basis points year over year.

On the Capital Expenditures side, Amazon spent approximately $44.2 billion in the quarter, slightly above the consensus estimate of $43.95 billion. The company did not change its $200 billion capex guidance for the year.

Guidance

Amazon provided solid guidance for the second quarter. Keep in mind, these figures are usually conservative. The company expects net sales to increase 16% to 19% year over year, to $194 billion to $199 billion. That midpoint of $196.5 billion beats the consensus of $188.96 billion. Second quarter operating income is expected to be between $20 billion and $24 billion. This midpoint of $22 billion was in line with the consensus estimate of $22.64 billion. This guide includes a $1 billion year-over-year increase in costs associated with Amazon Leo, its low Earth orbit satellite network. The guide also contemplates higher transportation costs due to fuel inflation, which are being partially offset by recently implemented fuel- and logistics-related fee surcharges.