Amazon's (AMZN, Financial) shares fell recently after being downgraded by Wells Fargo analyst Ken Gawrelski from “Overweight” to “Equal Weight.” The target price was significantly reduced from $225 to $183, reflecting concerns about Amazon's profit margin trends next year. Although growth in Amazon's cloud computing segment, Amazon Web Services (AWS), is promising, it's not enough to offset the negative outlook on profit margins.
This year, Amazon's stock has risen by 19%, slightly outpacing the Nasdaq 100's 18% increase. Gawrelski highlighted that although Amazon shows a positive trend in performance adjustments, short-term factors could pressure this trend. He cautioned that while the market anticipates fourth-quarter revenue pressure, margin expansion in the first half of 2025 may remain limited. There's little chance of positive estimate revisions before the company's July 2025 outlook, even with the support of AWS.
Despite the downgrade, Amazon remains favored on Wall Street, with about 94% of analysts rating it as a “Buy,” and none suggesting selling. The average analyst target price is around $219, suggesting a potential 21% upside in the next 12 months. This optimism largely stems from AWS's growth prospects, which are expected to benefit from sustained demand for AI-related services.
Concerns exist over Amazon's investment levels in AI, but Bloomberg Industry Research anticipates AWS sales growth could accelerate to 20% by 2025. This growth is expected to exceed common estimates by roughly 200 basis points, driven more by AI contributions, while non-AI IT demand may stabilize.
