Amazon Is JPMorgan's Top Pick In The Internet Space By A 'Wide Margin': Here's Why The Analysts Are So Bullish

Amazon.com, Inc. AMZN shares were helping lead a strong recovery in growth names Tuesday after JPMorgan analysts picked the stock as their favorite idea in the internet space.

What Happened: JPMorgan analysts reiterated Amazon with an Overweight rating on Tuesday.

"AMZN remains our favorite name by a wide margin," JPMorgan analysts wrote in a note to clients.

"And while it may be a top pick of many and feel somewhat owned, we believe there is also growing caution across both Retail and AWS in our discussions."

The firm also continued to expect revenue acceleration, margin expansion and capex moderation to drive significant free cash flow in 2023. 

AMZN Retail: Retail concerns were being driven by macro headwinds and uncertainty around how Amazon would fare in a recessionary environment, the analysts said. 

The firm expected higher in-stock inventory levels and faster delivery speeds would be key drivers for the stock. Amazon was also likely to have an inventory advantage this holiday season as it relied on third-party sellers for some items, which freed up physical space. 

JPMorgan noted Amazon doubled the size of its fulfillment network during the COVID-19 pandemic and was now focused on returning margins to pre-pandemic levels. The e-commerce giant was also expected to benefit from lower freight and fuel costs relative to the first half of the year, JPMorgan said. 

See Also: Amazon And 3 Other Stocks Insiders Are Selling

AWS: On the Amazon Web Services side of the business, JPMorgan noted there were growing concerns about a potential slowdown in AWS deals as competition heated up, but the firm expected Amazon to outpace AWS growth expectations.

JPMorgan was anticipating 31% growth in AWS in the third quarter versus consensus estimates of 30%. Amazon reported approximately 33% growth in AWS in its most recent quarter. 

The analyst firm also noted foreign exchange rates would weigh on reported growth and profitability in the third quarter, but Amazon was better positioned than other names.

"AMZN is, however, better hedged than some others, with product costs in the local currency and AWS Revenue mostly in USD," JPMorgan said.

The firm currently had a $185 price target on the stock, according to Benzinga Pro.

AMZN Price Action: Amazon has a 52-week high of $188.11 and a 52-week low of $101.26.

The stock was up 5.20% at $121.90 at time of publication.

Photo: courtesy of Amazon.