[Click e-Stock] Amazon Ahead of Q2 Earnings... What Are the Key Investment Points?

With Amazon scheduled to announce its Q2 2026 earnings on July 31, Daishin Securities analyzed that investors should focus on the growth rate of Amazon Web Services (AWS), the timeline for normalization of cash flow, and the North American operating margin in the retail segment to reassess Amazon’s stock valuation.

On July 23, Jaeun Cho, a researcher at Daishin Securities, stated, "The growth rate of AWS determines Amazon’s valuation," adding, "The growth rate of AWS is more important than total sales." Amazon’s Q2 revenue guidance is between $194 billion and $199 billion, about 4% higher than the consensus estimate of $189 billion.

In Q1 2026, AWS recorded a year-over-year growth rate of 28%, the highest in 15 quarters. The order backlog also reached $364 billion. The issue, however, is that net capital expenditures in Q1 this year shrank to $43.2 billion, and annualized free cash flow fell to $1.2 billion. This is why the market is closely watching when the funds spent on AI will begin to translate into cash flow.

Cho pointed out, "Since AWS revenue was $26.3 billion in Q1 last year, revenue should reach around $33.7 billion in Q2 this year to maintain a 28% growth rate." However, he also noted, "The intensified competition in AI infrastructure, with players like Oracle joining in, could have a greater negative impact on actual profitability by squeezing margins."

He also emphasized the direction of capital expenditures. Cho explained, "The capital expenditure stance shifted in Q1 2026 from five consecutive quarters of increases to maintenance." He added, "Although the absolute amount still exceeds $40 billion, the change in direction itself was read by the market as a signal of an investment peak." He further commented, "If capital expenditure in Q2 maintains the $40 billion to $45 billion range, free cash flow may remain negative," pointing out that "whether management provides a concrete timeline for cash flow normalization during the earnings call will be a key factor influencing the stock’s response."

Cho stressed the importance of the retail segment variable as well. "With Prime Day, Amazon’s largest annual sales event, now included in Q2, a boost in sales is expected," he said, "but with China’s exports to the U.S. falling by 31% year-on-year, this could materialize in third-party seller inventories. Therefore, it is crucial to closely examine whether the North American operating margin remains at the Q1 level," he advised.

This content was produced with the assistance of AI translation services.