Amazon earnings primer: Cloud dominance in focus after massive outage as rivals gain ground

Amazon is set to announce its third-quarter earnings after the market closes on Thursday, with analysts closely watching the company's performance in the cloud sector. Investors are particularly focused on AWS, which is projected to see an 18.1% year-over-year revenue growth, maintaining the same pace as the previous quarter. This comes as Amazon faces increased competition from cloud giants Google and Microsoft, which reported impressive quarterly gains of 34% and 40% in their respective cloud services. Last week, AWS experienced a significant setback with a prolonged outage lasting over 15 hours, affecting numerous websites. This incident follows a similar disruption at Microsoft’s Azure cloud and 365 services just hours before their earnings report. Moreover, there are concerns that AWS may be missing out on lucrative artificial intelligence opportunities, especially as competitors like Anthropic and Google solidify their cloud partnerships with multi-billion dollar deals. In a strategic move, Amazon recently launched its $11 billion AI data center, Project Rainier, designed to support the Claude chatbot from Anthropic, a company in which Amazon has invested $8 billion. CEO Andy Jassy has maintained that AWS holds a substantial leadership position in the cloud market, although he acknowledged that the AI landscape is still developing and dominated by a few large models. As the holiday shopping season approaches, Amazon's retail performance is also under scrutiny. The company plans to hire 250,000 seasonal workers, matching its staffing levels from the previous two years. Adobe Analytics forecasts a 5.3% increase in online holiday spending in the U.S., totaling $253.4 billion, although this is a slowdown compared to last year’s 8.7% growth. During the third quarter, Amazon hosted its annual Prime Day, resulting in $24.1 billion in online spending over four days in July—surpassing expectations with a 30.3% year-over-year increase. Despite uncertainties from fluctuating tariff policies, Jassy reported that demand remained robust. For this quarter, analysts predict an 11.9% sales increase compared to the previous year, while the upcoming fourth quarter is expected to see sales reach $208.1 billion, a 10.8% increase from last year. In a significant organizational shift, Amazon has announced layoffs affecting around 14,000 employees across various departments, with indications that further cuts may occur next year as part of a strategy to streamline operations and enhance AI investments. These layoffs could mark the largest in Amazon's history, following a reduction of over 27,000 positions from 2022 to 2023. Despite these challenges, Amazon’s shares have risen 4.9% this year, outpacing the Nasdaq's 24% increase.