My Take Before the Big Reveal!
¡Hola a todos! And hello from beautiful Punta Cana – your favorite (and hopefully profitable!) stock market trader and now, a guest blogger on this fantastic platform. It’s great to connect with you all here.
As many of you know, my passion lies in dissecting the market, especially when major players are about to drop their numbers. And this week, all eyes (including mine!) are on Amazon’s Q2 earnings report, due this Thursday. This isn’t just any earnings call; it’s Amazon, a company that can truly move the needle across the entire market. So, let’s break down what I’m watching closely.
The Market’s Whisper and the Chart’s Shout
First off, let’s talk about the vibe. The options market is practically shouting, pricing in a potential $12 – a solid 5.4% – swing in Amazon’s stock price right after the report. That’s a serious move, and it tells you just how much anticipation is baked into this event.
From a technical perspective, if you look at the charts, it’s a thing of beauty. We’ve got a textbook uptrend with those classic higher highs and higher lows, and the stock is comfortably trading above its key moving averages. If it weren’t for this earnings report, I’d say the technicals alone are screaming “bullish.” But as we know, earnings season loves to throw a curveball!
And what about sentiment? Well, a good chunk of my peers – 78% of them on specialized platforms – are actually expecting Amazon to beat both revenue and EPS estimates. Plus, a decent majority, 63%, believe the market’s reaction will be positive. This collective optimism is something to consider, but as I always preach, the market has a funny way of surprising the consensus.
The Dance of Supply and Demand: A Closer Look
Now, let’s dive a little deeper into the immediate supply and demand dynamics. What I’m seeing right now is interesting: buyer demand seems to be flattening out, while seller supply is actually picking up. This could be some pre-earnings jitters, or perhaps a few folks locking in profits.
The crucial level I’m watching like a hawk is the 5-day average price line, currently sitting around $230. As long as Amazon stays above that mark, it tells me the sellers haven’t really taken control yet. However, if we see a break below $230 post-earnings, that could signal a more significant profit-taking wave. Keep that number etched in your mind.
Unlocking Potential: The Power of VWAP
Here’s a little trick from my playbook that I find particularly insightful: the unconcealed Volume-Weighted Average Price (VWAP) originating from Amazon’s all-time high of $232 back on February 5th. The average price for those who initiated or added to their positions around that peak is roughly $203. This means a lot of big players are sitting on some healthy gains.
The real takeaway from this VWAP is that it suggests a relative lack of major resistance levels above the current price. If Amazon truly knocks it out of the park with a strong earnings surprise, that could lead to a very powerful upward move, potentially even exceeding the market’s anticipated $12 swing. That’s what we call “blue sky breakout” potential!
Breaking Down the Numbers: Revenue, EPS, and Amazon’s Rhythm
Alright, let’s talk hard numbers. The consensus for Q2 2025 revenue is projected at $162 billion, which is a nice bump from the $155.6 billion we saw last quarter. On the earnings per share (EPS) front, analysts are expecting $0.33, a decrease from Q1’s $0.59.
It’s vital to remember that Amazon’s business is cyclical. Their fourth quarter, driven by holiday sales, is always their strongest. That’s why I always stress that year-over-year comparisons are far more important than sequential ones for a company like this. The anticipated nearly 10% year-over-year revenue growth (from $147 billion in Q2 last year) is the real tell for me – it shows the underlying health and expansion of the business.
Valuation Snapshot: Is AMZN a Bargain?
With a staggering market capitalization of $2.46 trillion, understanding Amazon’s valuation is key. Its current trailing P/E ratio is 38, and the forward P/E is 36. The Price-to-Sales (P/S) ratio is sitting around 4. Now, some might look at those numbers and raise an eyebrow, but let’s put them in context.
Yes, Amazon generates immense revenue, but its profit margin is relatively modest, around 11%. This is due to the massive capital expenditures required for its complex logistics and e-commerce operations. For perspective, last quarter, online sales contributed $57.4 billion, while Amazon Web Services (AWS) brought in a very significant $29.27 billion.
The Secret Sauce: AWS Operating Margin is King!
If there’s one single metric that I will be fixated on this Thursday, it’s the operating profit margin of Amazon Web Services (AWS). This cloud computing juggernaut is Amazon’s true profit engine, and its performance is absolutely critical.
Analysts are anticipating a slight sequential dip in AWS operating margin, from 39.5% in Q1 2025 down to around 35% for Q2 2025. My past analysis (and plenty of hard-earned trading experience!) tells me that this specific number can move mountains. When AWS operating margin declined in Q4 2024, the stock stumbled. But when it surged in Q1 2025, the stock absolutely exploded!
So, mark my words: an unexpected increase in AWS operating margin – say, to 40% or even 41% – would likely be met with an incredibly positive reaction from the market. This is the number one key to unlocking significant upside.
Cash, CAPEX, and AI: The Financial Health Check
On the balance sheet front, Amazon is strong, with $94.5 billion in cash against $53.37 billion in long-term debt. Something I’ve always admired about Amazon, aligning with Jeff Bezos’s long-term vision, is their tendency to reinvest capital for growth rather than primarily focusing on share buybacks.
Currently, the market is laser-focused on Amazon’s capital expenditure (CAPEX), especially regarding its AI investments. Investors want to see smart, controlled spending that ultimately contributes to positive free cash flow. In the last report, free cash flow was actually negative by $8 billion. For a truly positive market reaction this quarter, I’ll be looking for a return to positive free cash flow and evidence of disciplined capital expenditure.
My Final Thoughts: A Historically Attractive Valuation?
When you look at Amazon’s historical valuation, it’s had some truly astronomical P/E ratios in the past (think 106 in 2015, 192 in 2017!). Comparing that to its current forward P/E of 36, it actually looks historically inexpensive. And with analysts projecting solid annualized revenue growth of 9-10% from 2026 to 2029, its current Price-to-Sales ratio of 4 isn’t something that concerns me too much, especially given the company’s sheer scale and future prospects.
So, here’s my game plan for Thursday: if Amazon delivers a pleasant surprise on that crucial AWS operating margin, demonstrates disciplined CAPEX, and shows improvement in free cash flow, I believe we could be looking at a very strong positive reaction in the stock. The stage is set for some fireworks!
As always, keep your risk management in check, do your own due diligence, and trade smart. It’s going to be an exciting end to the week!
¡Un abrazo fuerte from Punta Cana, and may your trades be profitable!