Amazon reports third-quarter results on Thursday, with Amazon Web Services (AWS), its cloud computing arm, the focus for investors.
UBS forecasts AWS revenue growth of 40% to $46.2 billion, up from 37% in the second quarter and 20% a year earlier.
The Swiss bank expects growth to reach 40.6% in the fourth quarter as contracts that depend on Amazon's own Trainium AI chips start to turn into revenue.
Analyst Stephen Ju says investors have caught up with that revenue outlook, so attention has shifted to profit margins.
UBS puts AWS operating margin for 2027 at 46%, against a consensus forecast of 38%.
Ju says the market is wrong to assume that artificial intelligence work will drag margins lower, because Amazon cannot spend its new revenue quickly enough.
Retail under pressure
The picture is weaker in the retail business, where UBS forecasts revenue of $67.2 billion, flat on a year earlier and well below the 15% growth of the second quarter.
Shipping costs grew faster than unit volumes in the second quarter for the first time since 2022, which UBS links to Amazon's expansion of ultra-fast delivery and higher oil prices.
The bank expects further pressure on retail margins in the near term.
Advertising looks stronger: UBS forecasts revenue of $20.9 billion, or 9.6% of gross merchandise value, up from 8.8% in the second quarter.
Checks with advertising buyers found that Amazon's spending beat expectations in the quarter, helped by its streaming and demand-side platform businesses.
Overall, UBS forecasts net revenue of $202.1 billion and operating income of $25.1 billion.
It expects earnings per share of $2.42, well above the consensus forecast of $1.96.
Capital spending and target
Amazon's capital spending is the main reason the shares have stalled since the second-quarter results, according to UBS.
Read more
- 07/02/26Amazon's $200bn AI bet. The market heard a warning, not a strategy
- 01/11/25Amazon’s Power Play: How AWS and Ads Are Fueling the Next Big Leg of Growth
- 01/08/24Amazon stock slumped after revenue arrived short of market forecasts
The bank has raised its 2027 capital expenditure forecast to $312 billion, which leaves free cash flow around zero for the year.
On that basis, UBS has raised its price target on Amazon to $348 from $318 and kept its Buy rating.
The new target is 40% above Friday's closing price of $248.
UBS has also switched its valuation method to price-to-earnings, which compares the share price with profit per share, from price-to-free-cash-flow, and applies a multiple of 20 to forecast earnings.
It says that is below the 21 times it sees for Alphabet, the owner of Google, and still a discount to Amazon's own historic range.
UBS puts its upside case at $468 a share and its downside case at $188.
It lists higher-than-expected capital intensity, weaker consumer sentiment and tougher competition among the risks.
