Amazon Q3 earnings are key for new all-time-high in S&P 500

This week the two most important earnings releases are from Microsoft (Wed) and Amazon (Thu) as those two companies are 7.2% of the S&P 500 weight. Microsoft’s performance in its latest fiscal quarter will undoubtedly meet expectations as the software maker is still enjoying an upgrade cycle related to Windows 10, conversion of on-premise Office users to the Office 365 cloud solution, and momentum in its cloud infrastructure business.

Amazon shares are down 14% from the peak and have not reached a new all-time high since Q3 2018 which unusual for the e-commerce giant. It reflects increasing hesitation to continue to pay a 100% valuation premium to the overall equity market as its size has swelled to an enterprise value of $900bn and revenue of $252bn. Investors will focus on AWS as this $30bn business is the most profitable for Amazon but also a business with increasing competition from Google, Microsoft and other cloud companies which could negative impact the AWS’s healthy 60% operating margin. Margin pressure has also been a topic in its e-commerce operations both in the North America and International segment, but more worrisome for the International segment is that operating income is negative while growth is slowing down. On the positive side AWS will most likely deliver strong growth and the advertising unit may surprise to the upside. For S&P 500 to set a record Amazon needs to deliver.