Amazon says “magic words.” They could catalyze a $100 billion market cap increase.
Three months ago, Amazon.com Inc. executives sent… Investors are scrambling for their dictionaries as they describe “easing” — or reducing — pressures on AWS’s cloud computing business.
But Thursday afternoon, at Amazon
The management team delivered the message Wall Street was looking for in familiar language: Amazon Web Services saw an “acceleration” in fourth-quarter revenue, according to CFO Brian Olsavsky, and executives expect “accelerating trends to continue through 2024.”
Those were the “magic words” investors wanted to hear, MoffettNathanson analyst Michael Morton wrote in a note to clients. This kind of talk, combined with Amazon’s latest results, has led to what he called “the cleanest quarter in recent memory.”
He rates the stock a buy with a price target of $228, up from $218 before the report.
Amazon stock rose more than 6% in premarket action on Friday. If pre-market gains continue into the close, Amazon’s market cap will rise by about $114 billion.
Morton wasn’t the only one who noticed the cleanliness of the Amazon neighborhood. Bernstein’s Mark Shmulik said that “every number” he looked at in Amazon’s report looked strong, including the company’s big results on operating income and revenue.
“So you’ll forgive us if we sit listening to the earnings call and imagine Andy Gacy with a shaved head, gold collar, and all-white shirts and pants — this was his Mr. Clean moment,” he wrote.
Shmulik highlighted Amazon’s ability to beat expectations with its latest operating income numbers and impressive outlook given that “everyone” on Wall Street seems to like the stock as a 2024 pick for the “same” thesis that was in large part about the impact of operating income. .
“Importantly, cost-saving efforts related to regionalization and cost-to-serve appear to be sustainable, allowing margins (in North America) to exceed 6%,” he wrote, while raising his price target to $200 from $175 and committing to an outperform rating.
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BMO Capital Markets analyst Brian Betz took a similar view of the opportunities ahead thanks to Amazon’s shift to a regional fulfillment model.
“Amazon’s regional efforts within its retail fulfillment network are producing faster delivery speeds for an increasing number of products and producing greater frequency for Prime members,” he wrote.
This dynamic “puts Amazon on track to generate more significant operating income and ultimately generate free cash flow,” according to Betz. “While these investments primarily benefit the US consumer, there are opportunities to improve international unit economics in geographically large regions (Brazil/India) as these regions continue to expand.”
He has an outperform rating on the stock and a new price target of $205, up $5 from previously.
JP Morgan’s Doug Anmuth described generative AI as a potential driver for AWS in the future, although it adds only a “small contribution” at present to the business, which has a run rate of about $100 billion.
“We believe AWS will gain significant traction in Gen AI over the next year as customers look to connect Gen AI efforts with existing data, leverage AWS’s broad set of[large language models]and leverage AWS’s full-service approach.” he wrote.
Overall, Anmuth noted that Amazon “has great momentum heading into 2024 and management is confident of AWS acceleration and further retail margin expansion.”
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