Investors had high hopes for Amazon (NASDAQ:AMZN) ahead of earnings as both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG) posted promising cloud metrics. Considering Amazon has by far the largest cloud business among hyperscalers, the company was supposed to surprise investors once again.
Unfortunately, that didn’t happen. Q1 2025 earnings did surpass estimates as EPS came in at $1.59 vs. the $1.36 forecast. But AWS only grew 17% to $29.27 billion and missed projections of $29.38 billion.
It’s not all that Amazon has to deal with right now. Tariffs have also made the environment more risky for Amazon. And before earnings came out, Amazon got itself into controversy with the White House after reports of the company displaying the impact of tariffs. President Donald Trump called Jeff Bezos, and Amazon scrapped the plan afterwards.
Amazon posted revenue of $155.7 billion and exceeded analyst projections of $155.1 billion in revenue. EPS trounced estimates, and the AWS disappointment was offset by the company’s advertising segment, which grew 19% year-over-year to $13.9 billion. The ad segment is what many expected to be the worst performer due to macro weakness, but the opposite seems to be the case.
For Q2, the company expects operating income at $13 billion to $17.5 billion vs. analyst estimates of $17.8 billion. This was also the quarter that the company’s management explicitly said that tariffs are going to “materially” affect the business.
AMZN stock is now down around 20% from its highs, but more trouble could be ahead as management is soft on guidance. Tariffs are going to have a much bigger impact on its e-commerce business, and ads are also going to be indirectly affected if international sellers pull back. If AWS keeps underperforming and ads also take a hit, the next quarter could end up being worse for Amazon.
Tariffs are yet to be reflected on companies’ financial statements, as they had built up a considerable amount of inventory beforehand, plus retaliatory tariffs were announced on April 2nd before being paused shortly after. We’ll see the true “cost” of the baseline + China tariffs for Amazon in Q2.
Considering the stock trades at over 34 times earnings, I would stay away from it for the time being. It is a good long-term buy, and AMZN stock has historically traded at a big premium, but waiting to see the impact of tariffs first is a better idea. In the meantime, there are other tech companies you can buy that are less exposed to tariffs and are trading at bigger dips. Buy them first.
