Amazon Stock Target Lifted at Baird on Revised Margin Outlook
Baird analysts have slightly lifted their price target on Amazon shares from $210 to $213 as of Thursday after revisiting the margin outlook for the e-commerce and cloud giant.
AWS Margins May Contract
The investment firm believes that Amazon Web Services (AWS) margins may contract later this year and into 2025. According to the analysts, AWS segment margins could reduce to around 30% or even lower. This is due to:
- Higher levels of operating expenses to support new data centers and infrastructure.
- An increasing mix of lower-margin GenAI workloads.
- A resumption in net headcount additions.
Revenue Projections
The analysts noted, “We don't believe GenAI workloads are generally incremental to revenues as yet, and are modeling mid-to-high teens percent AWS revenue CAGR from 2024-2027.”
North American Retail Margins
Baird also anticipates that North American Retail margins, excluding advertising, will return to low single-digit percentage levels over the next two years. For International Retail, they foresee sustained profitability within the next 2-3 years.
Strong Advertising Margins
On the other hand, advertising is projected to remain a strong margin tailwind. Based on these revised assumptions, the analysts are increasing their consolidated operating margin and earnings estimates for 2025 and 2026 above consensus, without altering revenue projections.
Conclusion
In summary, while AWS margins may contract due to various operational expenses and workload shifts, advertising remains a significant positive factor. These insights have led Baird to lift their price target on Amazon shares, reflecting a detailed analysis of various business segments and future profitability.
This updated viewpoint offers a clearer picture for investors on how Amazon’s diverse business components are evolving and impacting overall performance.
