Amazon (NASDAQ:AMZN) shares ended last week with a bang, fueled by strong Q3 results. The company beat expectations on both the top-and bottom-line, and while the Q4 revenue guide came in just below consensus, investors turned a blind eye to that miss and focused on a bright spot – the operating income guidance surpassed the Street’s estimate by 4%, with margins up by approximately 40 basis points.
Scanning the print, JMP’s Nicholas Jones, an analyst ranked in the top 2% of Wall Street stock pros, saw plenty to be upbeat about and thinks the stock is set for more strong days ahead.
“Overall,” said the 5-star analyst, “we view AMZN’s results and guidance favorably, and we continue to believe AMZN is the stock to own within e-commerce given its wide selection of non-discretionary items, its large and growing advertising business, and AWS’s exposure to AI.”
For the analyst, Amazon is hitting all the rights notes across the various strands of its business. Even though management noted customers remain mindful of spending, in the retail segment, the company said it is seeing “favorable trends” in everyday essentials, with customers making larger purchases and shopping more often. Looking ahead, by improving delivery speeds, reducing service costs, and improving packaging processes, the company plans to concentrate on “driving efficiencies” in its retail operations. Management also sees additional opportunities to leverage robotics and automation to that will further boost its fulfillment network.
Meanwhile, AI demand keeps on driving “strong AWS trends,” with AI amounting to a multi-billion-dollar annual revenue run-rate and “growing in the triple digits.” Over the past 18 months, Amazon has launched almost twice as many machine learning and genAI features as all other major cloud providers combined.
Furthermore, over time, the continued expansion of AI at AWS is expected to “drive operating margin improvement.” As Microsoft noted for its cloud business too, demand for AWS is surpassing supply, with the company believing that increasing capacity could lead to accelerated growth, although chips “remain a choke point.”
Summing up, Jones said, “We continue to like AMZN’s resilient performance across its business segments, exposure to generative AI spend, and continued strong performance in its advertising business.”
In fact, such is Jones’ conviction, he has raised his price target from the prior $265 to a Street-high of $285, suggesting Amazon shares will gain ~46% over the next 12 months. Hardly needs adding, Jones’ rating stays an Outperform (i.e., Buy). (To watch Jones’ track record, click here)
Jones isn’t alone in his optimism. Wall Street analysts overwhelmingly support the stock, with 45 Buys against just one Hold, giving AMZN a consensus Strong Buy rating. The average price target stands at $236.20 and offers one-year returns of ~21%. (See AMZN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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