Amazon Q1 Preview: AI Ambitions Under Scrutiny Amid Trade Policy Headwinds and Margin Pressures

Despite a 6% rally year-to-date, the stock has come under pressure in recent weeks amid concerns over weakening consumer demand, persistent cost pressures, and growing trade frictions between the US and China. With Amazon’s AI investments ramping up and AWS growth facing renewed scrutiny, this quarter’s results could prove pivotal in shaping the next phase of the company’s valuation story.

Robust profit growth expected but margin pressures loom

Consensus estimates suggest another solid quarter of top and bottom-line expansion. Adjusted EPS is expected at $1.662, up 26.1% YoY, while revenue is tipped to grow 8.3% YoY to $155.14 billion. Operating profit is forecast at $17.5 billion, with EBITDA at $36.97 billion. These figures continue a trend of positive surprises—Amazon has beaten earnings estimates in eight straight quarters. However, margin dynamics are in sharper focus. Adjusted net income margins, while improving (estimated at 11.9%), are facing renewed cost headwinds. Amazon continues to battle elevated logistics, labour, and infrastructure expenses. This quarter’s slight downtick in EBITDA forecasts (-0.5% QoQ) signals the potential re-emergence of cost concerns, particularly as the company maintains a high reinvestment rate across fulfillment and technology.

US-China trade tensions a risk to the earnings outlook

Amazon’s Q1 results also arrive against the backdrop of renewed US-China trade tensions. The threat of sweeping tariffs—potentially as high as 145% on some Chinese imports—poses a material risk to Amazon’s cost base, given its heavy reliance on Chinese suppliers. Recent scrutiny from the White House over Amazon’s labelling of tariff-induced price hikes adds a political dimension. With around a quarter of Amazon’s goods sourced from China, rising input costs and potential consumer backlash could weigh on margins and demand, compounding existing challenges in an already fragile retail environment.

Investors look for signs of AI monetisation

A key narrative this quarter will be the performance of Amazon Web Services (AWS). While still a dominant player, AWS growth has plateaued, with investors questioning whether Amazon is fully capitalising on the AI boom. Despite massive investments in AI model training, custom silicon (e.g., Trainium and Inferentia chips), and Bedrock, revenue growth from AI-powered services remains modest.

Competitors like Microsoft Azure and Google Cloud have more clearly articulated monetisation strategies tied to generative AI. Amazon will need to provide clarity on how it plans to monetise its AI infrastructure, especially as capex climbs and margins tighten. Watch for management commentary on enterprise AI adoption and early Bedrock uptake as potential catalysts for renewed optimism.

Analysts remain bullish on Amazon’s stock

At $187.39, Amazon trades at 33x trailing earnings and 22x forward earnings—modestly below its historical average. Analysts surveyed by Bloomberg remain overwhelmingly bullish: 94% rate the stock a "Buy" or "Outperform", with a consensus price target of $247.47, implying 32% upside.

But risks are accumulating. With trade policy turning restrictive, cost bases still elevated, and competitive pressures rising, Amazon’s Q1 results may not just be about numbers—they may be about proving the long-term AI-led growth narrative still holds. Investors will need to see more than just another earnings beat.

Amazon’s technicals point to potential trend reversal

Amazon shares remain below their 200-day moving average, but recent price action suggests tentative signs of a trend reversal. The stock has broken out of a short-term base, bounced off key support near $160, and is testing resistance near $190. The RSI has crossed above 50, signalling improving momentum. A confirmed break above $190 could open the door for a retest of the 200-day SMA near $199. A retest and break of the lows at roughly $165 and $160 would signal continued bearishness.

^{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)