BofA raises Amazon 2Q AWS expectations and reiterates Buy, with a $310 price target

Overview

This is a Bank of America 2Q26 earnings preview report on Amazon.com. The report reiterates a Buy rating and a $310 price target, primarily raises its AWS revenue growth expectations, and believes AWS-related AI demand, backlog, price increases, and Trainium efficiency will continue improving the market's perception of Amazon's AI positioning. Retail is expected to perform steadily in 2Q, but Prime Day moving into 2Q will pressure 3Q North America retail year-over-year growth comparisons.

Core views

The report's core views are: first, AWS growth could accelerate significantly in 2Q, with BofA expecting 33% year-over-year growth, a 5-percentage-point acceleration from 1Q and above the Street's 31% expectation; second, Anthropic-related revenue, OpenAI models entering Bedrock, and customers returning compute workloads to AWS to reduce data migration costs could drive AWS demand; third, 2Q AWS margins will decline sequentially due to stock-based compensation and depreciation, but are still expected to expand year over year to 34%; fourth, 3Q revenue and profit guidance could broadly bracket market expectations, although Prime Day timing will lower the 3Q North America retail revenue comparison base; fifth, Amazon's valuation remains attractive relative to historical EV/EBITDA and P/E ranges.

Analysis framework

The report evaluates Amazon using segment earnings forecasts, comparisons with consensus estimates, cross-validation with third-party consumer and cloud-computing data, analysis of Prime Day timing effects, a capital expenditure and AI returns framework, and a SOTP valuation methodology. For AWS, it focuses on revenue growth, backlog, AI customer demand, GPU pricing, and margins; for retail, it incorporates BAC credit/debit card data, Bloomberg Second Measure data, Prime Day, and logistics fuel costs; for valuation, it applies sales multiples separately to AWS, 1P Retail, 3P Retail, and Advertising.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  BofA maintains its $310 price target based on SOTP analysis: AWS is valued at 9x 2027 sales, 1P Retail at 1.0x, 3P Retail at 2.5x, and Advertising at 5.0x.

• earnings_previewBofA vs Street

  Comparison of institutional forecasts with market consensus

  The report compares BofA's forecasts for 2Q revenue, EBIT, AWS growth, and full-year 2026 revenue/profit with Street expectations to assess potential upside surprise.

• alternative_dataBAC card data and Bloomberg Second Measure

  Cross-validation of retail growth using consumer data

  The report uses aggregated BAC credit and debit card data and sales data tracked by Bloomberg Second Measure to verify whether 2Q US online consumption and Amazon retail growth are accelerating.

• operating_metricsiQmethod Business Performance and Quality of Earnings

  Operating performance and earnings quality metrics

  The report discloses metrics including ROCE, ROE, operating margin, free cash flow, cash realization ratio, asset replacement ratio, tax rate, net debt-to-equity ratio, and interest coverage to help assess operating quality.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AMZN.N

  Core covered security

  Strengths

  AWS has growth drivers from AI demand, Anthropic contribution, Bedrock, Trainium, and price increases; the retail business has a strong fulfillment network, high advertising margins, and conversion potential from Alexa for Shopping; valuation is attractive relative to historical ranges.

  Weaknesses

  AI capital expenditures continue to rise, with free cash flow negative from 2026E through 2028E; 2Q AWS margins are pressured sequentially by SBC and depreciation; retail margins are affected by fuel, logistics, and Leo costs.

  Comparison

  The report states that Amazon's 2027E P/E is 24x, below Walmart's 34x, roughly in line with Google's 24x, and above Microsoft's 19x; 2027E EV/EBITDA is 10x, below the 10-year average of 16x.

  Risks

  High AWS expectations, higher capital expenditures, 3Q retail year-over-year pressure from Prime Day moving forward, rising energy and transportation costs, and uncertainty over AI investment returns.

Key data

• Rating and target priceBuy; PO 310.00 USD; Price 249.99 USDThe report reiterates a Buy rating, implying approximately 24.0% upside.
• 2Q26 revenue/EBIT forecast198.8bn USD / 24.1bn USDAbove the Street's 196.8bn USD / 23.6bn USD.
• 2Q26 AWS revenue forecast41.0bn USDRaised by 710mn USD from the previous estimate, implying 33% year-over-year growth, above the Street's 31%.
• 2Q26 AWS margin forecast34%Expected to decline by approximately 4 percentage points sequentially, mainly due to SBC and depreciation; still expanding by approximately 1 percentage point year over year.
• 3Q26 revenue guidance expectation200.5bn-205.5bn USDMidpoint of approximately 203bn USD, slightly below the Street's approximately 204.2bn USD.
• 3Q26 operating profit guidance expectation21.5bn-26.5bn USDMidpoint of approximately 24.0bn USD, below the Street's approximately 25.0bn USD.
• 2026 revenue/operating profit forecast831bn USD / 105.8bn USDModestly raised from the previous 829bn USD / 104.8bn USD.
• 2026E EPS15.81 USDSignificantly above the previous 8.98 USD, reflecting gains from marking Anthropic's valuation to market.
• Prime Day revenue timing impactApproximately 6bn-7bn USD pulled forward from 3Q to 2QExpected to create approximately 4 percentage points of pressure on 3Q retail year-over-year revenue growth.
• Valuation multiples10x 2027E EV/EBITDA; 24x 2027E EPSEV/EBITDA is below the 10-year average of 16x since 2016, and P/E is below the 10-year average of 55x.

Impact & implications

If 2Q results demonstrate accelerating AWS growth, Anthropic backlog, Bedrock demand, and Trainium efficiency, the market may give greater recognition to Amazon's position as an AI beneficiary and price in returns on its high capital expenditures more positively. However, if management raises its 2026 capital expenditure outlook or AWS growth falls short of elevated investor expectations, the stock could face short-term pressure. In retail, 2Q online consumption and Prime Day will support growth, but 3Q will face year-over-year comparison pressure from the timing shift.

Risks

• The 2026 capital expenditure outlook could be raised due to higher memory prices and accelerated ASIC shipments, weighing on investor sentiment.
• 2Q margins could be affected by SBC, Prime Day, depreciation, energy, and transportation costs.
• Moving Prime Day into 2Q could create approximately 4 percentage points of pressure on 3Q North America retail year-over-year revenue growth.
• AWS growth expectations are already high; if actual growth falls below investors' expectation of approximately 34% or higher, it could trigger a negative reaction.
• Amazon Leo could create approximately 1.6bn USD of profit pressure in 3Q, and the pace of capitalization remains to be observed.

What to watch

• AWS revenue growth and margins in Amazon's 2Q results, scheduled for release after market close on July 30.
• Changes in AWS backlog, particularly the reflection of Anthropic's approximately 100bn USD long-term infrastructure commitment.
• Management commentary on Bedrock, OpenAI model integration, Trainium, and customers moving workloads back to AWS.
• Whether 2026 and 2027 capital expenditure guidance is raised further.
• The 3Q revenue and operating profit guidance ranges, and the impact of Prime Day timing on North America retail.
• Alexa for Shopping conversion rates, usage, and its ability to defend direct traffic after Prime Day.