After Alphabet Rout, Amazon Tests The AI Trade. Here's Why Indian IT Is Watching

Amazon reports its September-quarter results after the US market closes on Thursday, and the stakes have risen sharply in the last 24 hours. The company's earnings call begins at 2 pm Pacific time, or 2:30 am IST on Friday, so the verdict will be in well before Dalal Street opens.

Big Tech's earnings season has sent mixed signals so far. Alphabet shares fell 10% in US premarket trade after the Google parent reported negative free cash flow of $9.07 billion for the quarter, far worse than analysts had expected, while keeping its full-year capital expenditure guidance at $195 billion to $205 billion. Its search advertising revenue rose 12% to $63.35 billion but missed estimates. Microsoft, by contrast, gained about 3% after its capital spending rose 30% to $45.2 billion, short of the $50.67 billion analysts had forecast. Nasdaq-100 futures were down more than 1%.

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The message from investors is that AI spending is no longer rewarded on its own. Amazon will be judged on whether its cloud growth justifies what it is pouring into data centres.

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What Wall Street Wants From Amazon

Amazon Web Services grew 37% year-on-year to $42.2 billion in the April-June quarter, its fastest pace in 18 quarters, according to the company. The cloud unit's operating income rose to $16.6 billion from $10.2 billion a year earlier, a margin of 39.4%.

For the September quarter, analysts polled by FactSet expect AWS growth of 37.8%, CNBC reported. On last year's base of $33 billion, that implies revenue of about $45.5 billion. Some brokerages are more bullish, with Bank of America at about 40% and Deutsche Bank at about 41%, according to media reports.

At the group level, Amazon has guided for net sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion. The FactSet revenue consensus of $202.22 billion sits just above the top of that range.

Spending is the other half of the test. Amazon's free cash flow swung to an outflow of $7.6 billion over the 12 months to June, as purchases of property and equipment rose by $66.1 billion from a year earlier, mainly for AI. After Alphabet's slide, any change to that spending outlook could matter as much as the AWS growth figure itself.

ALSO READ: Alphabet's Revenue Miss Reignites Fears Over AI Spending Binge

Why Indian IT Is Watching

At the foremost, Indian IT companies are involved in business with AWS. TCS has partnered with it for over a decade, and HCLTech signed a collaboration agreement with it last November focused on financial services. But this year, the bigger link between the two has run through fund flows rather than contracts, and it has often worked in reverse.

In July, the Nifty IT index gained 16.8%, its best month in six years, as a retreat from the global AI trade pushed investors out of South Korean and Taiwanese stocks and into less-exposed Indian markets, Reuters reported. Then, after Amazon posted its fastest AWS growth in 18 quarters on July 30 and its shares jumped about 9% in extended trade, global tech stocks rebounded. The next day, the Nifty IT index fell as much as 3.7% before closing 1.6% lower, according to NSE data, though the drop also reflected profit booking after a five-session rally.

The pattern resurfaced in October. In the week to Oct. 16, the Nifty IT index jumped about 12% while the MSCI World Information Technology index fell 4.5% and South Korea's Kospi dropped 14%. The rally came even though TCS, HCLTech and Wipro posted their weakest September-quarter performance in three years. The index has gained about 15% this month, rising from 27,704.80 on September 30 to around 31,866 on Thursday, according to NSE data.

What It Means For Friday

If that relationship holds, a blowout AWS quarter paired with reassuring spending plans could revive the AI trade and draw money away from Indian IT in the near term. A disappointment could do the opposite and extend the rotation into Indian tech stocks.

That is a tendency, not a rule. Single-day moves have several drivers, and the sector's own fundamentals remain under pressure. Infosys last week cut its FY27 revenue growth guidance to 1-2% in constant currency, from 1.5-3%, and its shares fell 4% on Monday. Analysts are divided on the rally, with Bank of Baroda Capital Markets warning that advanced AI models could make the sector a value trap. Amazon's numbers may set Friday's tone for Indian IT, but the trend will depend on what these companies themselves deliver.

ALSO READ | Microsoft And Alphabet Earnings Put Focus On AI Cash Flow Drain

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