- Investment bank projects minimum of 18% AWS growth
- Amazon has splurged on AI projects
- Investors need to see pathway to improved North America retail profits
Booming cloud services and improving profits from its US marketplace are key reasons why Amazon (AMZN:NASDAQ) is the top megacap pick for analysts at investment bank Morgan Stanley.
According to Morgan Stanley, which raised its target for Amazon stock to $240, investors can expect strong growth from its cloud computing infrastructure leader Amazon Web Services (AWS). They reckon AWS needs to grow by at least 18% to build new management credibility and ensure confidence in its GenAI (generative artificial intelligence) positioning.
Amazon has lavished billion of dollars on AI projects as it tries to keep pace with the latest advancements in the new technology to remain one of the world’s AI leaders. This includes a $2.75 billion follow on investment in start-up Anthropic, which aims to help customers of all sizes and industries to reimagine user experiences, reinvent their businesses, and accelerate their GenAI journeys. Amazon has invested $4 billion in Anthropic in total.
GETTING BETTER PROFITS FROM RETAIL
Away from the cloud and AI, Morgan Stanley analysts believe the market also needs clarity on the slope of North American retail profits. The investment bank reckons its own operating profit forecasts are between 8% and 12% ahead of Wall Street predictions for fiscal 2024 and 2025 (to 31 Dec).
‘Stepping back to total company-wide EBIT, we think second quarter results and Q3 guidance should make the market feel more confident in a path toward rough $70 billion of company-wide EBIT in 2024, and mid-$80 billion in 2025’, wrote Morgan Stanley in a note to clients.
EBIT stands for earnings before interest and tax, which is effectively operating profit.
‘Notably for the 3Q guide, we are in-line with Street on total revenue, largely driven by 1% above Street North America revenue and -2% below Street International revenue’, the note stated.
Koyfin data has consensus Q2 EBIT pitched at $13.6 billion on $148.5 billion revenue, equating to EPS (earnings per share) of $1.01. Guidance for Q3 currently stands at $15.1 billion, $158.2 billion, and $1.14 respectively.
