Amazon (NASDAQ:AMZN) is emerging as the "most favored long among mega-caps" as the tech giant heads into its second-quarter earnings report, according to a recent note from Wells Fargo analysts.
Despite mixed hedge fund positioning for competitors like Meta (NASDAQ:META), Wells Fargo believes Amazon stands out due to strong performance expectations and positive forward commentary.
The bank's analysts predict an 18% increase in Amazon Web Services (AWS) revenue for the second quarter, with a sufficient operating income (OI) guidance of $16 billion for the third quarter.
The firm said it will also be closely monitoring Amazon's air freight commentary, estimating its impact on third-quarter operating income to be in the $200-$400 million range.
"See AMZN as the most favored long among mega-caps vs. META with more mixed HF positioning," the analysts stated, highlighting the strong investor sentiment towards Amazon.
In contrast, Google (NASDAQ:GOOGL) is expected to report a 14% constant currency growth for the second quarter, in line with the first quarter excluding Leap Day. They add that this growth is necessary to support the buyside's 2025 earnings per share (EPS) estimate of $9.25.
For Meta, a $40 billion revenue guide for the third quarter would support the analysts' 2025 revenue growth outlook of 14-15%.
Investor interest is also high around 2025 capital expenditure (CapEx) expectations for mega-cap internet companies. The analysts noted, "Unfortunately, believe clues on '25 CapEx from 2Q EPS will be limited."
Wells Fargo notes that current investor expectations for 2025 CapEx are as follows: Meta in the high $40 billion range, Google in the high $50 billion range, and Amazon AWS in the mid-$50 billion range.
The analysts state that upcoming second-quarter earnings reports will be critical for understanding CapEx allocation and return time frames, especially given potential changes in AI strategy at AWS following the recent CEO change.