Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Global Head of Investment Strategy
Investors looking for clear skies from Amazon’s latest earnings found themselves instead navigating choppy waters. On the surface, Amazon’s numbers looked impressive, but lurking beneath the waves is uncertainty driven largely by tariffs and intensifying competition.
First, the good news. Amazon delivered strong first-quarter results, reporting sales of USD 155.7 billion—a 9% jump year-on-year, comfortably above analyst forecasts. Profits surged an impressive 62%, underpinned by continued cost efficiency and the relentless expansion of its advertising arm.
CEO Andy Jassy expressed confidence, commenting, “We’re pleased with the start to 2025, especially our pace of innovation and progress in continuing to improve customer experiences.”
Yet, behind the solid headline figures, darker clouds are rolling in—namely tariffs. Amazon issued a clear warning about the potential financial impact from ongoing trade tensions between the US and China. Its profit forecast for the next quarter notably disappointed investors, ranging from USD 13 billion to USD 17.5 billion, falling short of market expectations closer to USD 17.7 billion.
With over 25% of Amazon’s inventory sourced from China and more than 60% of sales coming from third-party merchants heavily reliant on Chinese suppliers, tariffs represent a significant storm on Amazon’s horizon. For investors, this isn't just a drizzle—it could be a downpour.
"Tariffs are definitely the toughest navigational challenge this year, and Amazon’s ability to steer through this turbulence will define its near-term journey."
Amazon Web Services (AWS), long considered the profit engine powering Amazon’s impressive performance, grew 17% this quarter, hitting USD 29.3 billion. While impressive at first glance, this figure narrowly missed expectations, causing some concern given the extraordinary results delivered by key competitors.
Investors must now ask whether AWS is simply experiencing a temporary slowdown or if this signals that the era of Amazon’s cloud dominance faces tougher competition ahead. It's something worth watching closely, as AWS’s performance significantly influences Amazon’s overall profitability.
Amidst tariff turbulence and cloud competition, advertising quietly continues its impressive rise. Growing by a robust 18%, this segment reached USD 13.9 billion this quarter, making it one of Amazon's most profitable and resilient businesses.
"Advertising isn’t just a side hustle for Amazon—it’s becoming a lifeline. In a challenging economic environment, maintaining strong growth here could provide crucial stability for investors.”
Amazon continues its heavy investment strategy, pouring USD 24 billion this quarter alone into capital expenditures, aiming for USD 100 billion this year—primarily targeting cloud infrastructure and artificial intelligence initiatives.
These massive investments suggest Amazon isn't merely competing—it's aiming to reshape markets entirely. The big question is if investors are ready to embrace a longer-term strategy, trusting that today’s enormous costs will lead to tomorrow’s dominant market position?
To navigate these uncertain waters effectively, investors should closely monitor:
Andy Jassy and the leadership team appear cautiously optimistic but remain clearly aware of the challenging road ahead. They acknowledge the uncertainty of tariffs, consumer spending fluctuations, and intense competition, positioning Amazon cautiously but confidently.
Uncertainty is Amazon’s silent partner this year. Impressive results today are juxtaposed against undeniable caution regarding tomorrow’s outcomes.
To sum up, Amazon's latest earnings report tells two tales—impressive short-term growth and strategic long-term bets, balanced against near-term uncertainties. Investors might find calmer waters ahead, but for now, it’s wise to expect a few storms along the journey.