Amazon's (AMZN, Financial) shares experienced a decline as a rare analyst downgrade raised concerns over profit margin trends for the coming year. Analysts at Wells Fargo Securities adjusted their rating from 'overweight' to 'equal weight', citing doubts about the company's ability to sustain profit margin improvements. Despite strong growth in Amazon Web Services (AWS), this was not seen as sufficient to counterbalance margin pressures.
Ken Gawrelski, an analyst at Wells Fargo, reduced Amazon's price target from $225 to $183, marking one of the lowest targets on Wall Street. He highlighted that while Amazon has historically seen positive performance revisions, upcoming factors might exert pressure on these trends. Moreover, he warned that profit margin expansion could be limited into the first half of 2025, despite market readiness for Q4 operational revenue pressure.
Anticipating a limited chance for positive estimate revisions before the company's July 2025 outlook, Gawrelski expressed skepticism about AWS's standalone strength. Approximately 94% of analysts rate Amazon as a buy, with no sell recommendations. The average target price is around $219, suggesting a potential 18% upside over the next 12 months.
The general optimism surrounding Amazon largely stems from expectations of long-term demand for AWS, especially related to AI advancements. However, concerns persist about Amazon's expenditures in AI-related investments. Bloomberg Industry Research noted that AWS sales growth could accelerate by 20% by 2025, driven significantly by AI contributions, despite stabilizing demand for discretionary non-AI IT spending.
