Amazon Issues Mixed Q2 Guidance: Buy, Sell or Hold the Stock?

Amazon AMZN delivered strong first-quarter 2025 results with earnings of $1.59 per share, which beat estimates by 17.78% and increased 40.7% year over year. Net sales reached $155.7 billion, up 9% from the previous year and slightly ahead of expectations. (Read more: Amazon Q1 Earnings Beat Estimates, Stock Falls on Mixed Guidance)Despite this solid performance, the e-commerce giant's stock faced pressure following the earnings announcement due to its cautious second-quarter outlook. For second-quarter 2025, Amazon expects net sales between $159.0 billion and $164.0 billion, representing growth of 7-11% compared to the second quarter of 2024. However, the company's operating income guidance of $13.0 billion to $17.5 billion fell short of the $17.7 billion market expectation, triggering a 5% drop in after-hours trading following the announcement.The Zacks Consensus Estimate for 2025 net sales is pegged at $693.74 billion, indicating growth of 8.74% from the prior-year reported figure. The Zacks Consensus Estimate for 2025 earnings is pegged at $6.3 per share, which indicates a jump of 13.92% from the year-ago period.Image Source: Zacks Investment ResearchFind the latest earnings estimates and surprises on Zacks Earnings Calendar.Tariff Concerns Weighing on Retail OutlookThe primary factor contributing to the conservative second-quarter guidance appears to be uncertainty surrounding tariffs. The retail sector faces significant challenges with tariffs on Chinese imports, creating ambiguity about pricing strategies and potential impacts on consumer demand. During the earnings call, management acknowledged this uncertainty while noting they hadn't yet seen demand attenuation, with some categories even experiencing heightened buying, possibly indicating consumer stockpiling ahead of tariff implementation.Amazon emphasized its diverse seller base and broad selection as potential buffers against tariff-related disruptions. Management highlighted that the company's enormous selection (hundreds of millions of unique SKUs) and more than two million global sellers position it to weather challenging market conditions. Additionally, the company mentioned that everyday essentials grew twice as fast as the rest of its business in the first quarter, representing one-third of all units sold in the United States.AWS and Advertising Continue to Witness Strong GrowthWhile retail faces headwinds, Amazon Web Services (“AWS”) continues to be a highlight, growing 17% year over year to reach a $117 billion annualized revenue run rate. AWS operating income jumped 23% to $11.5 billion with impressive 39.5% operating margins. Management noted that with more than 85% of global IT spending still on-premises, substantial future growth potential remains.Advertising services also delivered strong results, growing 19% year over year to $13.9 billion. This growth demonstrates Amazon's increasing ability to monetize its massive consumer base through its advertising platforms.AI Investments Amid Intensifying CompetitionAmazon's investments in artificial intelligence (AI) are accelerating across all business segments. Management revealed that its AI business has reached a "multi-billion dollar annual revenue run rate with triple-digit percentage growth year-over-year." The company continues to invest aggressively in AI capabilities, including custom chips like Trainium 2 that offer 30-40% better price performance compared to GPU-based instances. Amazon has expanded access to its Nova foundation models through nova.amazon.com, marking a significant step in its artificial intelligence strategy. The company also introduced Amazon Nova Act, a new AI model trained to perform actions within web browsers, along with the Amazon Nova Act SDK for developers to experiment with this early model.This move puts Amazon in direct competition with OpenAI's Operator and Anthropic's Computer Use tools in the rapidly evolving agentic AI space. Reportedly, Nova Act outperforms competitors on several internal tests, scoring 94% on ScreenSpot Web Text compared to OpenAI's 88% and Anthropic's 90%.However, competition in agentic AI is intensifying rapidly with significant advancements from tech giants, including Microsoft MSFT, Nvidia NVDA and Alphabet GOOGL-owned Google. Microsoft is integrating advanced AI agents into its business applications, with new security capabilities being rolled out through Microsoft Security Copilot. Google's collaboration with NVIDIA on next-generation AI hardware will power advanced reasoning models, while NVIDIA itself has launched its Llama Nemotron family of reasoning models specifically for agentic AI platforms. The partnership between LTIMindtree and Google Cloud further demonstrates how enterprise adoption of agentic AI is accelerating across industries.With a 12.9% decline in the year-to-date period, AMZN has underperformed both the broader Zacks Retail-Wholesale sector and the S&P 500, which declined 1.8% and 4.9%, respectively. Shares of Microsoft have returned 4.2% while Alphabet and Nvidia have declined 19.1% and 12.3%, respectively, in the same time frame.AMZN’s Year-to-date PerformanceImage Source: Zacks Investment ResearchAMZN's Stretched Valuation Raises ConcernDespite strong fundamental performance, Amazon's valuation metrics raise questions about near-term upside potential. The company's forward 12-month Price-to-Sales ratio of 2.79X stands significantly higher than the Zacks Internet - Commerce industry average of 1.86X, suggesting the stock may be fully valued at current levels.The company's free cash flow has decreased significantly, dropping to $25.9 billion for the trailing 12 months compared with $50.1 billion for the same period last year. This decline reflects Amazon's aggressive capital investments, which totaled $24.3 billion in the first quarter alone, primarily supporting technology infrastructure for AWS and AI services.AMZN’s P/S F12M Ratio Depicts Premium ValuationImage Source: Zacks Investment ResearchInvestment Perspective: Hold AMZN Stock or Wait?For investors already holding Amazon shares, maintaining positions seems prudent given the company's long-term growth trajectory and leadership in cloud computing. However, prospective investors might consider waiting for a better entry point, particularly if tariff concerns create additional volatility in the coming months.While the stock may face near-term pressure due to cautious second-quarter guidance and relatively high valuation multiples, Amazon's diversified business model, growing high-margin revenue streams, and strategic investments in future technologies suggest that the company remains well-positioned for long-term growth despite current headwinds and intensifying competition in the AI space. AMZN currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks