Amazon finally is nearing a bottom on this key measure, analyst says

By Emily Bary

AWS cloud-computing growth 'could be at, or very near, a low point,' says BofA

Amazon.com Inc. is nearing a bottom on a key measure that could be the focal point of its upcoming earnings report.

That's according to BofA Securities analyst Justin Post, who said he thinks Amazon (AMZN) "could be at, or very near, a low point" in terms of the growth rate for its AWS cloud-computing service in the month of July. Amid a slowdown in the cloud market, Wall Street is keenly watching for signs of improving trends.

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Growth at AWS will be "top of mind for investors" when Amazon posts earnings at a date yet to be formalized, Post said, after management suggested growth decelerated to 11% on a year-over-year basis during the month of April. This time around, he'll be watching for "any call commentary suggesting stabilization in trends on an improving macro and easing comps as a potential positive."

One risk for Amazon, however, is that cloud rival Microsoft Corp. (MSFT) will likely post results first, as Microsoft is on the July 25 docket. Microsoft's Azure cloud-computing business likely saw customers "optimize" spending earlier than Amazon did back in 2022, potentially making for a "tough" set of comparisons.

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But "if Azure is stabilizing/accelerating" in the third quarter, that could "be a positive read for AWS" in the fourth quarter, Post said.

The other important area to watch will be Amazon's North America retail margins. Post is "constructive on potential for ongoing improvement" in the third quarter given commentary from Chief Executive Andy Jassy on Amazon's potential eventually to exceed prepandemic operating margins for this part of the business, as well as signs of progress with per-unit shipping costs.

Once again, Wall Street will be focused on Amazon's forward commentary on margins.

"We think there is increasing potential for positive retail margin surprises in 2023 as logistics efficiencies and ad strength progress," Post said. He rates the stock a buy with a $154 price objective.

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-Emily Bary

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07-19-23 1046ET

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