When Amazon reports its third-quarter results after the market close on Thursday, all eyes will be on its cloud computing division. BofA Securities thinks Amazon Web Services (AWS) could grow a bit faster than Wall Street expects, thanks to a combination of new data-center capacity, price increases, and a surge in demand for AI-powered services.
BofA models AWS revenue growth of 40% for the quarter, compared with the 38% consensus among analysts. That two-percentage-point gap might sound small, but for a business that generates tens of billions of dollars in quarterly revenue, it can move the needle significantly on Amazon's overall results and its stock price.
What's driving the faster growth?
According to BofA, several factors are lining up to give AWS a boost. First, more data-center capacity is coming online, which means AWS can serve more customers and handle more workloads. Second, the company has been raising prices on certain services, which directly lifts revenue. Third, and perhaps most importantly, enterprises are increasingly using AI for what's called "inference" — the process of running a trained AI model in real time to make predictions or generate responses.
Inference is different from training, which is the computationally heavy process of building an AI model. Training gets a lot of attention, but inference is where the ongoing, everyday usage happens. As companies deploy AI tools in their operations, they need cloud providers like AWS to run those models continuously. That creates a steady stream of revenue, and BofA sees that demand accelerating.
The bank also points to bigger contracts tied to AI workloads, as enterprises commit to larger, longer-term deals with AWS.
Can AWS grow without hurting profits?
One of the key questions for investors is whether AWS can accelerate its growth without sacrificing profitability. BofA believes the division's operating margin will hold at 39%, which would be a strong result given the heavy investment Amazon is making in AI-ready data centers.
That investment leads to higher depreciation costs, which can eat into margins. But BofA argues that strong usage rates, more work shifting to Amazon's own Trainium chips, growth in Bedrock (Amazon's AI platform for building and scaling generative AI applications), and higher fees for certain services should offset those costs.
Trainium chips are Amazon's custom-designed AI processors, which are typically cheaper than buying from external suppliers like Nvidia. By using its own chips, Amazon can reduce costs and improve margins. Bedrock, meanwhile, is a key part of Amazon's AI strategy, allowing businesses to access foundation models from various providers through a single API.
At the company level, BofA's forecasts for the quarter are close to consensus: it expects revenue of $202 billion and operating profit of $26.4 billion. That means the real swing factor is AWS — if it beats expectations, the whole company looks stronger.
Why this matters for investors
For investors, the AWS growth number is more important than the headline revenue figure. Cloud computing is Amazon's main profit engine, while its retail business operates on much thinner margins. A faster-growing AWS with a stable margin suggests that Amazon is filling its new capacity quickly and has enough pricing power to keep costs — especially depreciation from building AI-ready data centers — from running ahead of revenue.
That's why earnings reactions often hinge on the AWS segment. It shapes how investors think about the durability of Amazon's AI-driven operating profit, not just whether the headline totals land near consensus.
If AWS grows 40% and keeps a 39% margin, it would signal that Amazon is executing well on its AI strategy and that the heavy capital spending is paying off. If growth comes in closer to 38% or below, investors might worry that the company is spending too much without seeing enough return.
Amazon's results will also be watched for broader signals about the health of cloud spending. Rivals like Microsoft and Google have also been investing heavily in AI infrastructure, and their results have shown strong demand. But Amazon is the market leader in cloud infrastructure, so its numbers carry extra weight.
For everyday investors, the key takeaway is that AWS is the engine that drives Amazon's profitability. When you hear about Amazon's earnings, pay attention to the cloud numbers — they often tell you more about the company's future than the overall revenue figure.
BofA's call is just one bank's view, but it highlights the optimism around AI-driven cloud demand. As more companies move their AI workloads to the cloud, providers like AWS stand to benefit. The question is whether they can do so profitably.
Investors will get the answer on Thursday, and the market's reaction will likely depend on whether AWS delivers the kind of acceleration BofA is predicting.
