Amazon is expected to face challenges this year, with Baird predicting a decrease in margins for its cloud computing unit, AWS. Analyst Colin Sebastian anticipates AWS margins will drop to around 30% due to higher operating expenses related to new data centers and infrastructure, as well as a shift towards lower-margin GenAI workloads. These GenAI workloads are not yet driving significant revenue growth, with Sebastian foreseeing mid-to-high teens revenue growth for AWS between 2024 and 2027.
On the retail front, margins are expected to see slight growth in the next two years, excluding advertising. Sebastian projects that North American retail margins will reach 4% in 2023 and around 10% by 2027, while international retail is also expected to achieve profitability in the coming years. Despite the decline in AWS margins, Amazon’s robust advertising growth could potentially boost overall operating margins and lead to better-than-expected earnings per share. Advertising margins are forecasted to be between 50% and 60%, driven by strong pricing and video ad growth.
Colin Sebastian has a 69% success rate in his AMZN stock predictions, with an average return of 20.29% per rating. Overall, analysts have a Strong Buy consensus rating on Amazon, with 42 Buy ratings in the last three months. Despite a 43% increase in share price over the past year, the average price target for AMZN stock is $221.55 per share, suggesting an 18.59% upside potential.
In conclusion, Amazon is expected to face challenges with AWS margins and retail growth, but the strength in advertising could offset these setbacks. With a positive outlook from analysts and a track record of success, Amazon remains a promising investment opportunity for investors.
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