Ahead of Amazon.com Inc.'s (AMZN  ) third-quarter earnings report due on Thursday, Oct.31, Wedbush analysts including Dan Ives, Scott Devitt and others have expressed that the company presents an intriguing "risk/reward" scenario. This is because expectations for profitability in the latter half of the year have diminished.

What Happened: The analysts in a note released on Thursday Amazon's stock performance has been lackluster since its second-quarter earnings report on Aug. 1, with only a 1.9% increase, compared to a 6.9% rise in the NASDAQ. This is amid ongoing discussions about initiatives like Project Kuiper and associated costs.

"We think investors should take advantage of this period of relative underperformance, and we reiterate our Outperform rating and $225 PT."

Wedbush's estimate for third-quarter operating income is about 6% above consensus, and they have adjusted their fourth-quarter estimate upward by approximately 3% to $17.3 billion, aligning with market expectations. The firm maintains an Outperform rating and a $225 price target for Amazon.

Despite concerns regarding Project Kuiper's expenses, Wedbush remains optimistic about Amazon's long-term margin trajectory. The transition towards higher-margin advertising and AWS revenue is anticipated to significantly boost Amazon's profitability, with operating income expected to grow at a 20% compound annual growth rate over the next five years.

Despite concerns regarding Project Kuiper, Wedbush believes Amazon's long-term margin trajectory remains strong. The shift towards higher-margin advertising and AWS revenue is expected to drive substantial profit growth, contributing to sustainable operating margin expansion.

Why It Matters: Goldman Sachs analyst Eric Sheridan anticipates Amazon to report a solid mix of revenue growth and operating margin expansion in its upcoming third-quarter financial results. Sheridan notes that while e-commerce demand remains relatively stable, units sold continue to outpace revenue due to lower average selling prices.

Digital consumers are increasingly opting for lower-priced items, and Amazon's strategy of expanding product selection, including essentials, aligns with meeting consumer needs at these price points. This approach is seen as a sound long-term strategy, reinforcing Amazon's potential for sustained growth and profitability.