Amazon's (AMZN) stock took a hit on October 7, 2024, closing 3% lower after Wells Fargo analyst Ken Gawrelski downgraded the company from Overweight to Equal Weight, reducing its price target from $225 to $183. Gawrelski's note highlighted several headwinds that could weigh on Amazon’s profit margins despite its strength in cloud services through Amazon Web Services (AWS). Key concerns included rising competition from Walmart (WMT), higher costs linked to Amazon’s satellite broadband project, and slowing contributions from its advertising business.
Amazon has long been a “positive revision story,” but Gawrelski believes pressures like Walmart's aggressive fulfillment services, which undercut Amazon's fees by 15%, could force the tech giant to lower its own rates, potentially denting retail profits. Additionally, while AWS, Amazon's cloud computing arm that supports AI tools, generated strong results with $26.3 billion in Q2 revenue—beating analyst expectations—the overall performance of the company has recently missed forecasts. The advertising segment saw a 20% growth, but its $12.8 billion revenue for Q2 also slightly missed estimates.
Amazon remains one of the so-called "Magnificent Seven" tech stocks benefiting from AI hype, with a 42% stock price increase over the past year. However, Wells Fargo cautioned that AI advancements, while promising for AWS, may not be sufficient to offset broader challenges in Amazon’s other segments, such as retail and fulfillment. Despite the downgrade, Wall Street consensus still expects the stock to rise over 20%, targeting around $220, though Gawrelski's more cautious outlook sees shares leveling off at $187 within the next year.
Amazon has long been a “positive revision story,” but Gawrelski believes pressures like Walmart's aggressive fulfillment services, which undercut Amazon's fees by 15%, could force the tech giant to lower its own rates, potentially denting retail profits. Additionally, while AWS, Amazon's cloud computing arm that supports AI tools, generated strong results with $26.3 billion in Q2 revenue—beating analyst expectations—the overall performance of the company has recently missed forecasts. The advertising segment saw a 20% growth, but its $12.8 billion revenue for Q2 also slightly missed estimates.
Amazon remains one of the so-called "Magnificent Seven" tech stocks benefiting from AI hype, with a 42% stock price increase over the past year. However, Wells Fargo cautioned that AI advancements, while promising for AWS, may not be sufficient to offset broader challenges in Amazon’s other segments, such as retail and fulfillment. Despite the downgrade, Wall Street consensus still expects the stock to rise over 20%, targeting around $220, though Gawrelski's more cautious outlook sees shares leveling off at $187 within the next year.