VIDEO: Why Amazon’s AWS Results Are Likely to Be More Like Microsoft’s Than Meta’s
Coming off yesterday’s Fed non-event and last night’s Meta ($META) and Microsoft ($MSFT) results, we made a few Pro Portfolio moves as both reports reinforced accelerating AI adoption, expanding cloud usage, and rising backlogs — comfort that’s helping justify capital spending set to run much higher in the back half of 2026. We explain why that suggest favorable results next week from Arista Networks ($ANET), Axon Enterprise ($AXON) and Palantir ($PLTR).
We also frame our expectation for Amazon’s ($AMZN) AWS results landing closer to those from Google ($GOOGL) Cloud and Microsoft’s Azure than to Meta. Plus, a few words ahead of Apple’s ($AAPL) earnings report, also tonight.
Transcript
Hey folks, Chris Versace here. It is Thursday, July 30th, and as I’m sure you know, we are working our way through a busy, busy week between earnings and yesterday’s non-event, but still a head-scratcher nonetheless, Fed policy meeting. We also had quarterly results last night from Meta and Microsoft. Coming into the week, our message to you was that we — and I should say the market — have several hurdles.
That we’re going to have to see how the market contends with those. Do they clear them? Do we get knocked down? What have you? And, as we passed through the Fed policy meeting and the quarterly results last night from Meta and Microsoft, our view was that we would wait until we started to see the reaction in the market and then plot our way forward. And we still have a little bit more to go with Apple and Amazon. However, after what we saw last night from Meta and Microsoft, we did make a few moves with the Portfolio, as those reports really gave the market some positive things to think about when it comes to AI adoption and widening usage.
But let’s step back a little bit, because when we take a look at what we saw with Google Cloud’s revenue growth last week and its margins, and what we saw with Microsoft’s Intelligent Cloud and Azure metrics last night, it does show that yes, AI adoption is growing, usage is expanding, AI infrastructure is being monetized, and backlogs of work are rising. That combo, in my opinion, gave the market a reason to get more comfortable with rising capital spending levels that will be much higher in the back half of the year compared to the first half. And yes,as we look at the market today, I’m pretty sure that some of the things we’ve talked about that have influenced market dynamics of late to the downside are probably helping lift it today. I’m talking about the impact of leveraged ETFs, single-stock futures, but also — particularly in the case of Microsoft and maybe some other stocks that have really gotten beaten up — some short covering. Now, those factors are not entirely responsible for the move, but again, I think they are a contributing factor.
Now, when we sit back and put it all together — and by that I mean the aggregate comments from Meta, Microsoft, and Google Cloud, and the rise in capital spending, again much stronger in the second half of the year compared to the first, and expected to go higher still in 2027 — it tells us that the demand outlook for chips, power, networking and the like remains very, very positive, hence our moves this morning with some of the names in the Portfolio, and we have our eyes on a few others as well.
All in all, those aggregate comments are very positive for multiple holdings in the Portfolio, both for our individual stock positions and those in the EPS All-Stars basket.
Now, outside of chips, which we arguably covered in our alerts between Meta and Microsoft, the ramp in capital spending, particularly at Microsoft and Meta, bodes extremely well for Arista Networks. But remember, Arista has faced some bottlenecks in its supply chain, so when it reports next week, we will want to hear how it has overcome them so it, too, can boost production in the coming quarters.
We can also connect the dots between the comments from Microsoft and its Azure business to Axon, which will also report next week. In the past, Axon has noted it is one of Azure’s larger customers globally. And, while Microsoft doesn’t give any specific end-market commentary about what’s going on inside Azure, I will say that what we saw in Azure’s results this quarter meshes pretty well with the signals about public-safety adoption of AI and cloud-based services from Axon. That has us cautiously optimistic, let’s say, for what Axon is poised to deliver next week. Remember, we continue to like Axon given the positive mix shift toward the higher-margin software and services business. We will continue to track its backlogs and RPOs very, very closely. I would also say that when we look at the aggregate comments about rising AI adoption and usage, and their acceleration, that keeps us cautiously optimistic as well for Palantir, which will report its earnings next week.
Palantir also uses Amazon Web Services, so we will want to hear what Amazon has to say after today’s market close. Just as an aside on Palantir, the commercial side should really reflect what we’re seeing given the ramp in cloud and AI at Google, at Microsoft, and hopefully what we’ll see after the close at Amazon Web Services. But remember, the company also has a very solid foundation in its government/military business, and that business should continue to benefit from incremental program wins — some of which we’ve talked about in recent alerts, others earlier this year — as they continue to ramp. And remember, Palantir has been named a program of record with the DOD.
Now, I want to share some thoughts with you just about how we’re thinking about it Amazon and AWS ahead of tonight’s earnings. It goes something like this. When we look at Meta, Google and Google Cloud, and Microsoft and Azure/Intelligent Cloud, we see Amazon and AWS more in the camp of Google, Google Cloud, and Microsoft Azure. What do we mean by that? Pretty simple. AWS serves external customers that are adopting AI and cloud, driving revenue and RPOs that back guidance and spending.
In other words, external customers are paying, and therefore helping fund the build-out. That’s not something we have at Meta yet. There are reports that Meta is looking to do similar deals, potentially starting with Anthropic, but until announced, that remains on the horizon. It’s also a potential catalyst for us to revisit our new Three rating on Meta shares down the line.
So, when we think about that commentary, it leads us to believe that Amazon’s performance, or at least the performance for AWS, is more likely to be somewhere between Google Cloud and Microsoft’s Intelligent Cloud and Azure for the second quarter. In other words: accelerated revenue growth, relatively stable margins, if not improving margins, and a rising AWS backlog.
Let’s remember this is Amazon we are talking about. And that does mean we will still need to be on guard for any unexpected increases in overall capital spending and investment. But with the company announcing the winding down of certain AI programs, our sense is that Amazon’s management team is keeping a close eye on the cost side of the ledger.
If Amazon delivers on those fronts, and we think there’s a good chance they will, it should be another glass of tonic for the market when it comes to AI, data centers and cloud. And that could mean we might have to revisit a rating or two in the Portfolio later this week, early next week.
Also, after the close, we have Apple, and based on industry shipment data, it should be a good quarter for the company, especially for iPhone. We do have the iPhone refresh right around the corner. So we don’t expect to hear many new things — not that Apple really tips its hand during these earnings calls whatsoever. As we move through the earnings report and whatever comments we do get from the management team about the current quarter, we will be focused on margins, pricing, and of course the all-important, high-margin services business.
Now let’s also remember that tonight’s earnings call will be Tim Cook’s last. Is it possible there could be a surprise or two? Certainly possible.
But for us, the key is the upcoming release of Apple’s refreshed software platforms, with the new Apple Intelligence and Siri AI. What we are looking to see is whether the market’s reception to those updates is positive enough to foster the upgrade cycle many have been waiting for, especially for iPhone. Now remember, that’s more of a September story, but we will continue to watch the commentary around upcoming software beta releases. And of course, one last thing we want to touch on: we referred to it earlier this week, but it’s a point worth hammering home because I think it’s a genius move.
I’m referring to Apple’s new Apple Upgrade Program. What is it? Well, essentially it’s a program that helps customers deal with higher prices for Apple’s products. We’ve already had some price-increase announcements. Odds are we’re going to see that with the new iPhone lineup as well. But this Apple Upgrade Program will allow customers to spread their payments out over multiple months, depending on the device, so it makes upgrading more affordable, or at least helps folks who want to buy a new device wrap their heads around those higher prices.
So I do think that is a good move, but where it’s really smart on Apple’s part is that it puts the risk on Klarna, not Apple. We’ll have more to say, obviously, after we digest Amazon’s earnings, Apple’s earnings, and of course we have earnings tomorrow from Eaton.
The busy week is not over, my friends. And remember, we also have the July Monthly Roundup coming your way tomorrow night. It’s going to be a busy last push here. But please, with that in mind, continue to check your emails and your alerts. We want to make sure you’re getting our latest thoughts. And if we happen to make any other moves with the Portfolio this week, we want you right there with us. Thanks for watching.
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At the time of publication, TheStreet Pro Portfolio was long AMZN, ANET, AXON, GOOGL, META, MSFT and PLTR.
