Amazon 2026 Q1 Earnings Preview: AWS and Advertising Dual Engines Power Ahead, Can They Allay Market Doubts?

TradingKey - U.S. e-commerce giant Amazon ( AMZN) is set to report its first-quarter 2026 financial results on April 29. According to the latest market consensus from financial data platform FactSet, the company's Q1 revenue is expected to reach $177.2 billion, a 13% year-over-year increase, with adjusted earnings per share projected at $1.63.

Revenue is expected to achieve double-digit growth, driven primarily by the accelerated expansion of AWS cloud services and sustained strong growth in the advertising business.

Notably, Amazon announced in February that its capital expenditure plan for 2026 will reach a record $200 billion, representing a nearly 60% increase from 2025—a scale that far surpasses other tech giants. The vast majority of these funds will be directed toward artificial intelligence infrastructure, including data center expansion, proprietary chip development, and the deployment of high-speed networking equipment.

However, this aggressive investment plan has sparked concerns among some investors. Doubts about whether such massive AI investment can yield short-term returns, coupled with anxieties over the return cycle of capital expenditures, led to weak stock performance for Amazon in February.

The market is looking to this earnings report to bolster investor confidence.

Q4 Performance Review

Reviewing Amazon's Q4 2025 financial results, the company's revenue for the period exceeded market expectations, primarily driven by robust growth in AWS (up 24% year-over-year) and its advertising business (up 23% year-over-year). Despite an improvement in retail margins, net income of $21.192 billion (up 6% year-over-year) and earnings per share of $1.95 were slightly below market expectations.

During the fourth quarter, AWS revenue hit $35.6 billion, up 24% year-over-year, with a corresponding net income of $12.5 billion, an 18% increase. The segment has beaten market expectations for three straight quarters, with growth momentum continuing to accelerate. Advertising revenue reached $21.317 billion, up 23% year-over-year, maintaining a high-growth trajectory.

Amazon AWS shows strong growth momentum.

As demand for generative AI infrastructure continues to scale, enterprise spending on cloud services for large model training and inference is rising, putting AWS on an accelerated growth trajectory. Its dedicated AI chip series, Trainium and Inferentia, are seeing gradual commercial deployment, which will bolster AWS's competitiveness in the global cloud market and close the gap with Microsoft Azure and Google Cloud.

In his 2025 letter to shareholders, Amazon CEO Andy Jassy revealed that AWS added 3.9GW of data center power capacity in 2025, with plans to double total capacity by late 2027. Despite persistent compute bottlenecks and unmet customer demand, AWS maintains strong growth momentum.

Amazon AWS has developed a comprehensive proprietary chip ecosystem, spanning three major product lines: Nitro NIC networking chips, Graviton CPUs, and Trainium XPU AI chips.

At the end of 2025, AWS launched its new proprietary Trainium3 chip and the Trainium3 UltraServer. AWS CEO Matt Garman stated that the Trainium3, built on TSMC's 3nm process, offers four times the performance of the previous generation.

The next-generation Trainium4 AI chip is slated for full launch in October 2027. Currently, AWS's proprietary chip business is commercialized indirectly through EC2 instances, with annual revenue exceeding $20 billion.

The proprietary chip strategy is critical to reducing Amazon's dependence on costly Nvidia hardware, but the primary challenge for Trainium3 remains attracting large external customers. As Google's TPU continues to gain market share, Trainium3 shipment volumes are under close market scrutiny. If Amazon can prove its chips significantly lower training costs, it will gain significant leverage in negotiations with Nvidia.

The Rise of the Advertising Business

AWS has long been the mainstay of Amazon's profits, but today, its advertising business is no longer a mere sideline.

Advertising services centered on Sponsored Products grew 23% year-over-year last quarter, far outstripping the company's overall revenue growth. Given its significantly higher profit margins compared to retail, its expansion continues to bolster overall earnings performance. With Q4 2025 revenue reaching $21.3 billion, it has not only unlocked the value of closed-loop retail data but also emerged as a major competitor to traditional digital advertising platforms, joining the global elite.

By leveraging a big data architecture built on user purchase intent, Amazon Advertising provides sellers, vendors, and agencies with various formats—including search, display, and video ads—to achieve precise targeting on and off the platform. Core products include Sponsored Products, Sponsored Brands, and Sponsored Display.

Amazon Advertising is now the third-largest digital ad platform in the U.S., showing robust resilience. With the comprehensive rollout of the Prime Video ad tier and the recovery of advertiser budgets following the peak shopping season, advertising revenue is poised to maintain double-digit growth in the first quarter of this year.

Regulatory shadows linger

Meanwhile, Amazon's external partnerships in the AI sector have garnered significant market attention. On April 20, local time, Amazon announced a deepening of its strategic partnership with AI unicorn Anthropic. Under the agreement, Anthropic has committed to purchasing over $100 billion in computing resources from AWS over the next decade, while Amazon will provide an additional strategic investment of up to $25 billion, building on its previous $8 billion investment.

The two companies will also jointly advance technological research and development. Anthropic will participate in the definition and optimization of next-generation Trainium chips by Amazon's custom chip team, Annapurna Labs, while AWS will provide Anthropic with a total of 5 GW of multi-generational Trainium chip compute support.

Furthermore, OpenAI recently announced the completion of a massive $110 billion funding round, in which Amazon led with a $50 billion investment, marking Amazon's largest-ever investment in a single enterprise.

The market is currently broadly optimistic about Amazon's growth prospects. Morgan Stanley maintained its "Overweight" rating, noting in its research report that Amazon Web Services (AWS) is entering an acceleration phase for AI workload migrations. The firm expects cloud revenue for 2026 to exceed market expectations, emphasizing that Amazon is one of the most direct beneficiaries of AI infrastructure construction.

Goldman Sachs raised its price target for Amazon to $290, asserting that continuous improvements in advertising margins are becoming a "second engine" for Amazon's earnings growth, creating a dual-driver development structure alongside AWS.

However, it cannot be ignored that risks related to regulatory scrutiny have become increasingly prominent. Previously, Microsoft was considering seeking legal remedies regarding a roughly $50 billion partnership between Amazon and OpenAI.

Scrutiny by regulatory agencies of such large-scale tech investments often carries the potential for procedural delays or even modifications to terms, which remains a focal point for the market. Investors should remain mindful of whether Amazon can successfully advance these strategic partnerships and what ultimate impact the associated investments will have on its long-term growth curve.