Amazon evolved from one of the world’s largest online retailers into a tech powerhouse and a hyperscaler. Amazon Web Services (AWS), a cloud computing platform, became the most important part of its business thanks to the artificial intelligence boom.
The backbone of Amazon’s AI strategy is its custom-made Trainium AI accelerator chips, designed in partnership with Marvell (MRVL).
Amazon reported its Q4 earnings on Feb. 5. The stock took a dip, closing 5% lower on the next day, according to Yahoo Finance.
What alarmed some investors was Amazon President and CEO Andy Jassy’s statement in the earnings release. “With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low earth orbit satellites, we expect to invest about $200 billion in capital expenditures [capex] across Amazon in 2026, and anticipate strong long-term return on invested capital.”
The investors weren’t the only ones to react negatively to the earnings. Bank of America lowered its Amazon stock price target.
Amazon’s outlook for Q1 2026:
- Net sales are expected to be in the range of $173.5 billion to $178.5 billion.
- Operating income is expected to be in the range of $16.5 billion to $21.5 billion.
Source: Amazon earnings report
Amazon will report its Q1 2026 earnings on April 29. The company recently made some key moves to improve its cloud services and AI strategy.
Amazon’s key AWS deals
Amazon joined OpenAI’s latest funding round in February.
The company has pledged up to $50 billion of investment in OpenAI, starting with $15 billion.
Its FORM 8-K reveals that the deal has the following caveats: “Amazon Sub is obligated to purchase all remaining Commitment Shares upon the earlier to occur of (i) OpenAI meeting specified milestones, and (ii) OpenAI directly or indirectly consummating an initial public offering or direct listing of equity securities in the United States (a “Public Listing Transaction”), in each case subject to certain terms and conditions.”
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Investing in OpenAI isn’t without risk and raises questions about circular financing. The companies have also expanded their existing $38 billion agreement by $100 billion over eight years. OpenAI has committed to consuming approximately 2 GW of Trainium capacity through AWS infrastructure.
The company also improved its regional infrastructure.
In a similar deal, Amazon expanded its partnership with Anthropic.
Amazon said it will invest $5 billion in Anthropic and up to an additional $20 billion in the future. Anthropic will secure up to 5 gigawatts of current and future generations of Amazon’s Trainium chips to train and power its AI models.
This means Anthropic has committed to spending more than $100 billion over the next 10 years on AWS technologies.
AWS improved its Amazon Elastic VMware Service (Amazon EVS). EVS now offers Microsoft Windows Server licensing entitlements. This enables its users to migrate or create new virtual machines (VMs) running Windows Server OS in EVS and obtain Windows Server licensing entitlements for those VMs from AWS.
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Bank of America raises Amazon stock price target
Bank of America analyst Justin Post and his team updated their opinion on Amazon stock ahead of earnings.
The team estimates Q1 revenue and EBIT of $178.4 billion and $21.4 billion, respectively, which they note is above Wall Street consensus at $177.1 billion and $20.7 billion, respectively. Analysts raised their year-over-year growth estimates for AWS to 28%, above the Wall Street consensus of 25%. They added that expectations could reach 29%, driven by Anthropic-related revenues.
Related: Goldman Sachs resets Broadcom stock forecast
Post said AI revenues may be dilutive to overall margins, which is a risk for the quarter, but January layoffs and strong core AWS margins could offset. The team expects the company to provide revenue guidance for Q2 of $185 billion to $190 billion and operating income guidance of $17.5 billion to $21.5 billion.
In a research note shared with me, Post reiterated a buy rating for Amazon stock and raised the target price to $298 from $275, based on his sum-of-the-parts analysis that values AWS at 9x 2027 sales estimates, first-party retail at 1.0x, third-party retail at 2.5x, and advertising at 5.0x.
Downside risks for Amazon:
- Increasing competition from offline and local retailers
- Market share loss to cloud competitors with advanced AI technology
- Elevated AWS investment needs that could pressure margins
Analysts also noted that the stock has been subject to significant volatility in the past, and that volatility could increase amid economic uncertainty.
Related: Bank of America revamps AMD stock price target
