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Amazon Faces Downgrade Despite AWS Optimism: Profit Margins in Focus

AInvestMonday, Oct 7, 2024 9:00 pm ET
1min read

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.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.