• Amazon reports Q1 revenue of $155.7 billion exceeding expectations
• AWS revenue growth misses expectations
• Q2 operating income guidance disappoints

Strong Results Clouded by Tariff Uncertainty and Cloud Slowdown

Amazon (NASDAQ: AMZN) has delivered another quarter of solid financial performance, beating Wall Street’s expectations on both revenue and earnings per share in the first quarter of 2025. The e-commerce and cloud giant reported robust results across most of its core business segments, underscoring its continued dominance in digital retail and advertising. However, the market’s reaction was less enthusiastic, as softer guidance for the second quarter and concerns over rising U.S.-China trade tensions weighed on investor sentiment.

While the company’s financial foundation remains strong, questions about future growth momentum, particularly in Amazon Web Services (AWS) and its third-party seller ecosystem have led to a more cautious outlook. Tariffs introduced by the Trump administration have introduced new layers of complexity for a business so deeply tied to global supply chains, with potential ripple effects across pricing, margins, and demand.

Q1 Earnings Beat Expectations

For the quarter ending March 31, Amazon reported:

• Revenue: $155.7 billion vs. $155.1 billion expected
• Earnings per Share (EPS): $1.59 vs. $1.36 expected
• Net Income: $17.1 billion vs. $14.6 billion expected

Amazon’s Q1 2025 financial results came in above consensus estimates, reflecting a steady stream of revenue from its core business lines. The company reported total revenue of $155.7 billion, exceeding expectations of $155.1 billion. Earnings per share stood at $1.59, well ahead of the $1.36 analysts were anticipating. Net income rose to $17.1 billion, up from $14.6 billion in the same quarter in the prior year. These numbers mark another strong quarter for Amazon, which has now exceeded expectations for three consecutive reporting periods.

Revenue increased from the $143.3 billion reported in Q1 of 2024, highlighting the company’s resilience despite the volatile macroeconomic environment. Amazon’s ability to maintain double-digit growth across multiple verticals speaks to its operational discipline and the strength of its ecosystem. While Wall Street appreciated the beat, the attention quickly turned to what the next few quarters might bring, particularly in the face of tariffs uncertainty.

Ad Business Emerges as a Key Growth Driver

One of the more encouraging trends in Amazon’s results was the strength of its advertising business, which continues to emerge as a vital profit engine for the company. Advertising services generated $13.92 billion in revenue, representing a 19% year-over-year increase and exceeding analyst expectations. This performance cements Amazon’s position as the third-largest player in the global digital advertising space, trailing only Meta and Alphabet.

The advertising division is particularly attractive due to its high-margin nature and scalability. With billions of daily product searches and a rapidly growing base of Prime members, Amazon has built a compelling platform for advertisers seeking performance-based results. The strong Q1 results suggests that brands are continuing to prioritize Amazon as a critical channel in their digital strategies, especially as marketers seek measurable returns in an uncertain economy.

AWS Revenue Misses Expectations Despite Solid Growth

Amazon Web Services, the company’s flagship cloud computing division, remains one of its most important strategic assets. In the first quarter, AWS generated $29.27 billion in revenue, representing a 16.9% year-over-year increase. Despite the double-digit growth, the result fell short of the $30.9 billion that analysts had forecast. This also marked the slowest rate of growth in five quarters, suggesting that demand in the cloud space may be normalizing after a prolonged period of expansion.

The underwhelming AWS numbers were poorly perceived especially after rival Microsoft Azure reported stronger-than-expected cloud growth. This has raised speculation that AWS might be losing ground in key segments, as companies grow more cautious with IT spending. While AWS continues to deliver strong margins, the market’s sensitivity to signs of deceleration in cloud computing cannot be underestimated.

Guidance Disappoints Amid Tariff Concerns

Despite the solid Q1 results, Amazon’s outlook for the second quarter was cautious. The company projected revenue between $159 and $164 billion, which sits just around or slightly below consensus expectations. More concerning for investors was the forecast for operating income, which Amazon guided between $13 billion and $17.5 billion, well below the $17.8 billion anticipated.

This muted guidance has been attributed in large part to concerns over sky high tariffs on Chinese imports. With the Trump administration imposing 145% tariff on certain Chinese goods and a blanket 10% tariff on other countries, Amazon’s cost structure is facing pressure. The timing of these measures comes just as Amazon enters a key inventory build-up period ahead of the back-to-school and holiday seasons.

Tariff Headwinds: A New Era of Uncertainty

CEO Andy Jassy acknowledged that the company is watching tariff developments closely. While Amazon has not yet seen a slowdown in consumer demand, it is already observing behavioural changes among its third-party sellers. Many of them are rushing to stockpile inventory in the U.S. before the full effects of the tariffs are felt. Jassy said that Amazon is “maniacally focused” on keeping prices low and maintaining its wide product selection but also admitted that inflationary pressures remain a significant challenge.

The situation escalated earlier in the week when reports surfaced that Amazon would begin labelling products with notices about tariff-induced price increases. The company quickly denied this, but the controversy prompted a call from President Trump to Jeff Bezos. Although the conversation appeared to defuse tensions temporarily, it highlighted how closely Amazon is now tied to national economic policy and political narratives. The implications could be profound if these trade measures do not get resolved.

Third-Party Sellers Caught in the Crossfire

Amazon’s sprawling network of third-party sellers many of whom are based in China, has long been a source of growth and product diversity for the company. However, this same network now presents a vulnerability as new tariffs threaten to increase costs significantly. In the first quarter, revenue from third-party seller services grew at a much slower pace than usual, up just 7% when excluding currency impacts.

Some sellers may choose to absorb the higher costs rather than pass them on to consumers, which could benefit Amazon in the near term by keeping prices stable. However, if margins become too compressed, sellers may be forced to reduce their offerings or leave the platform altogether. Amazon’s ability to balance seller profitability with consumer affordability will be tested in the months ahead, in the absence of a trade resolution.

Source: TradingView

Stock Performance and Market Sentiment

Despite the positive headline numbers, the market’s reaction to Amazon’s earnings was muted. Shares rose to $192 following the release, driven by strong Q1 figures and a broad tech rally sparked by upbeat reports from Meta and Microsoft. However, the rally stalled on concerns about Q2 guidance and broader macro risks.

Amazon’s stock is now down around 14% year-to-date and 21% below its February all-time high, underperforming peers in the tech sector. Investors appear to be increasingly concerned that rising costs, coupled with uncertain demand and regulatory scrutiny, could weigh on growth in the second half of the year. With so much of its performance tied to consumer sentiment and global supply chains, Amazon finds itself at a delicate inflection point.

Looking Ahead: Key Watchpoints

As Amazon enters the second quarter, several key issues will shape its trajectory. The first is whether tariffs will be expanded or adjusted, and how quickly Amazon can adapt its pricing and supply chain to mitigate the impact. Another concern is whether AWS can regain its growth trajectory amid heightened competition from Microsoft and Google. Consumer behaviour is also a critical factor, as higher prices may influence buying patterns in the coming months.

Finally, ss one of the most visible and strategically important companies in the world, Amazon will continue to attract attention from both regulators and political leaders. How it manages these pressures could determine not only its near-term performance but also its broader corporate reputation.

Conclusion

Amazon’s first-quarter earnings for 2025 offered a mixed picture: strong performance in advertising and core retail was offset by softness in cloud growth and uncertainty surrounding tariffs. While the company remains a juggernaut in many respects, it is entering a new phase of complexity that will demand agility, innovation, and clear communication.

Investors will be watching closely the quarters ahead, as Amazon seeks to defend its leadership position in an environment defined by geopolitical tension, economic uncertainty, and rapidly changing consumer expectations.

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Footnotes:

1. Amazon Investor Relations: https://s2.q4cdn.com/299287126/files/doc_financials/2025/q1/AMZN-Q1-2025-Earnings-Release.pdf