Amazon Faces Downgrade Despite AWS Optimism: Profit Margins in Focus
Amazon.com (AMZN.US) saw its share price drop as Wells Fargo Securities surprisingly downgraded the stock from "Overweight" to "Equal Weight," cutting the target price from $225 to $183. This adjustment reflects market concerns over Amazon’s profit margin trends for the upcoming year, despite a promising outlook for its cloud computing segment, AWS.
Analyst Ken Gawrelski noted that, although Amazon's performance has shown positive revisions, short-term factors may hinder this progress. He cautioned that while the market is somewhat prepared for Q4 revenue pressure, profit margin expansion in early 2025 might face limitations. Even the strength of Amazon Web Services (AWS) is not sufficient to alleviate these concerns before the company's 2025 mid-year outlook.
Despite the downgrade, Amazon remains favored on Wall Street, with approximately 94% of analysts rating it as a "Buy," and none recommending a "Sell." The average price target is around $219, suggesting a potential 21% upside over the next 12 months.
The continued optimism is largely attributed to AWS, which is expected to benefit significantly from long-term AI-driven demand. While there are concerns over Amazon’s spending on AI, industry research forecasts AWS sales growth could accelerate by 20% by 2025, surpassing expectations by about 200 basis points. The impact of AI is anticipated to be substantial, with non-AI IT spending stabilizing.