We’re raising our price level on Amazon by $50 after a killer quarter
Amazon shares rose after the tech giant reported stronger-than-expected first-quarter results, driven by continued growth in its Amazon Web Services unit. Revenue rose 17% year over year to $181.52 billion, beating the analyst consensus 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 average of $1.64, per LSEG. However, it’s not a great comparison because the results included pre-tax gains of $16.8 billion in non-performing income related to the company’s investment in Anthropic. Operating income rose 30% year over year to $23.85 billion, beating the consensus forecast of $20.82 billion. 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 potential. Investment in strong e-commerce logistics infrastructure makes its online store a must-have. Prime offers free shipping, video streaming, and tons of other perks to keep users paying each month. Competitors : Walmart , Target , Microsoft , and Alphabet Most recent purchase : April 15, 2025 Launched : February 2018 Bottom line After a slow start to 2026, Amazon stock has come back to life, gaining nearly 26% in April to a new all-time high. What has changed? The market quickly realized that Amazon’s close relationship with Anthropic could fuel AWS’s growth, making management’s $200 billion capex plan worthwhile. The rally set a record high to be published on Wednesday, but the company’s results caused a stir, sending shares up 4% in after-hours trading. In retrospect, we were pleased to see Amazon deliver its highest operating quarter of all segments in the company’s history. Yes, AWS is an important part of the story, but the improvement in margins across North America and international operations shows that the company is doing very well, and the top revenue streams have momentum. Amazon is firing on all cylinders, and we’re raising our price target to $300 from $250 to reflect the latest results while maintaining our buy-to-let ratio of 1. It was a big night for earnings, with group names Alphabet , Microsoft , and Meta Platforms also reporting quarterly results. AMZN 1Y Amazon’s 1-year return Commentary Revenue growth in the cloud unit Amazon Web Services (AWS) rose to 28.4%, from 23.6% in the previous quarter, resulting in revenue of $37.59 billion, exceeding estimates of $36.9 billion. This was the fastest business growth rate in 15 quarters. Both operating income and operating margin were better than expected, too. The company’s portfolio of internal chips, such as Graviton, Tranium, and Nitro, exceeded the $20 billion revenue estimate, up from more than $10 billion in the previous quarter. Amazon’s custom chip business has been a huge success, allowing it to make its infrastructure more cost-effective and reduce its reliance on Nvidia. AWS recently secured multi-gigawatt partnerships with OpenAI and Anthropic to use Trainium chips. But don’t think that the relationship between AWS and Nvidia is ending. CEO Andy Jassy said on the phone that he has “great respect” for the company and “will be a long-term partner as far as I can see, and will always have customers who want to use Nvidia on AWS.” AWS backlog closed the quarter at $364 billion, up from $244 billion in the fourth quarter. And the new figure is underestimated because it doesn’t include the recently announced deal with Anthropic, which is valued at more than $100 billion. With such a large backlog, we argue that Amazon has the last visibility to capitalize aggressively. As for all parts of the company’s business, there were strong revenues across Online Stores , Subscription Services , Third Party Merchant Services , Advertising , and Others (including healthcare, licensing, branded credit cards, and other businesses). We like to see bits of Marketing and Third Party Marketing Services because both are great sources of income. Only Physical Stores missed its mark. By country, North American sales rose 12% to $104 billion, beating the consensus estimate by about $1.8 billion. Operating margins increased 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 about $44.2 billion in the quarter, slightly above the consensus estimate of $43.95 billion. The company did not change its capex guidance of $200 billion for the year. Guidance Amazon provided strong guidance for the second quarter. Remember, these figures are usually following. The company expects net sales to rise 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 median of $22 billion was in line with the consensus estimate of $22.64 billion. The guidance includes a $1 billion increase each year in costs related to Amazon Leo, its low Earth orbit satellite network. The guide also takes into account higher transportation costs due to fuel inflation, which is partially offset by recently implemented surcharges on fuel and transportation-related items. (Jim Cramer’s Charitable Trust is long AMZN. See here for a full list of stocks.) 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