Bank of America is optimistic about Amazon.com, Inc. (AMZN.US) in the third quarter: the retail sector is expected to exceed expectations, and the outlook for cloud services is becoming more optimistic.

Bank of America recently released a research report looking ahead to the third-quarter financial report of Amazon.com, Inc. (AMZN.US), stating that the retail sector is expected to perform strongly, and the future outlook for Amazon.com, Inc.'s cloud service (AWS) is more optimistic. Amazon.com, Inc. is set to release its financial report after hours on October 30. Third-quarter performance preview: Retail performance and outlook are expected to be robust The bank expects there is room for Amazon.com, Inc.'s retail sector to exceed expectations, with third-quarter revenue expected to be $179.2 billion, 1% higher than the market's expectation of $177.7 billion. As for Amazon.com, Inc.'s cloud service (AWS), the bank expects third-quarter revenue to be $32.3 billion (a 17.7% increase year-on-year), which is essentially in line with the market's expectation of $32.4 billion (an 18.0% increase year-on-year). Bank of America believes that due to healthy retail sales, strong performance in online advertising business, and the layoffs in Amazon.com, Inc.'s cloud service in July, there is the possibility of Amazon.com, Inc.'s operating profit exceeding expectations: it is expected that the third-quarter Generally Accepted Accounting Principles (GAAP) operating profit will be $20.4 billion, 4% higher than the market's expectation of $19.7 billion. The bank's assessment is that the market expects the following: U.S. retail revenue may exceed market expectations by 1-2%; based on third-party (3P) data, Amazon.com, Inc.'s cloud service's year-on-year growth rate may be 18%-18.5%; operating profit slightly higher than the upper limit of Amazon.com, Inc.'s third-quarter performance guidance range. In addition, Alphabet Inc. Class C (GOOGL.US) and Microsoft Corporation (MSFT.US) will release their earnings the day before Amazon.com, Inc.'s financial report, and their performance may affect the market's expectations for Amazon.com, Inc.'s cloud service and advertising revenue. North American retail sector data shows that growth momentum is better than market expectations Bank of America's credit card and debit card data for the third quarter shows that Amazon.com, Inc.'s online spending growth rate accelerated; Bloomberg Second Measure's credit card and debit card data also show a similar trend. Currently, the market expects that Amazon.com, Inc.'s North American (N.A.) retail sector year-on-year growth rate will slow down by 1 percentage point from the second quarter, while third-party data indicates that Amazon.com, Inc.'s North American retail sector growth rate may exceed market expectations by 1-2%. As for the fourth quarter, third-party data shows that the boost effect of "Prime Big Deal Days" is relatively limited, but Bank of America's credit card data shows that during that week, Amazon.com, Inc.'s online spending increased by an average of 8.9% year-on-year, showing strong performance. Fourth-quarter outlook: Performance guidance may pose a slight obstacle to stock price The bank expects the strong momentum of North American e-commerce to continue, while the growth rate of Amazon.com, Inc.'s cloud service may slightly accelerate. The bank expects fourth-quarter revenue guidance to be $202-209 billion, with the market consensus at $208 billion, corresponding to a quarter-on-quarter growth rate of 15.5%, compared to 14% in the fourth quarter of 2023 and 16% in 2024; operating profit guidance is expected to be $18-22 billion, with a market consensus of $23.7 billion. Previously, Amazon.com, Inc. had stated that the midpoint of its fourth-quarter performance guidance would exceed the same quarter last year by 3%; and based on data from logistics research firm MWPVL, the bank believes that the efficiency improvement cycle in the retail sector during this holiday season will continue. Historically, Amazon.com, Inc.'s fourth-quarter performance has typically exceeded performance guidance, and the better-than-expected performance in the third quarter may lead to an upward adjustment of the performance guidance range for the fourth quarter. Looking forward to a change in communication tone for Amazon.com, Inc.'s cloud service in Q4; maintaining a buy rating Amazon.com, Inc.'s stock price has risen by 1% year-to-date, while the S&P 500 index has risen by 15%, as investors have concerns about the positioning of Amazon.com, Inc.'s cloud service in artificial intelligence. However, Amazon.com, Inc.'s "Reinvent Plan" capacity is expected to be released in the first half of 2026, with accelerated growth in order backlog in the previous quarter and strong growth in core artificial intelligence partner Anthropic; the bank believes that Amazon.com, Inc. is expected to more clearly highlight the capacity advantages of AWS and the benefits of the Trainium3 chip in 2026. In addition, there may be motivations to drive market sentiment and build momentum for the AWS re:Invent conference in December. In 2026, Amazon.com, Inc. is expected to have an Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) multiple of 12.6 times, lower than the 10-year average of 16.4 times; while the expected Price-Earnings (PE) ratio in 2026 is 29 times, basically in line with Microsoft Corporation (28 times), at a discount compared to Walmart Inc. (36 times), and this discount is expected to further widen in 2027 (Amazon.com, Inc.'s expected PE ratio in 2027 is 24 times).