8 Analysts Size Up Amazon's Q1 Results, AWS Opportunity: 'Likely The Biggest Winner In AI'

E-commerce giant Amazon.com Inc AMZN reported first-quarter financial results that saw revenue and earnings per share beat estimates from analysts.

Analysts react to the report and updated guidance from the company.

The Amazon Analysts: Bank of America analyst Justin Post had a Buy rating and raised the price target from $204 to $210.

Mizuho analyst James Lee had a Buy rating and raised the price target from $230 to $240.

Piper Sandler analyst Thomas Champion had an Overweight rating and raised the price target from $205 to $220.

Goldman Sachs analyst Eric Sheridan had a Buy rating and raised the price target from $220 to $225.

Needham analyst Laura Martin had a Buy rating and a $205 price target.

Roth MKM analyst Rohit Kulkarni had a Buy rating and raised the price target from $205 to $210.

JMP Securities analyst Nicholas Jones had a Market Outperform rating and a $225 price target.

Wedbush analyst Scott Devitt had an Outperform rating and a $225 price target.

Bank of America on Amazon: Accelerating AWS growth was a key from the earnings report for Post.

"Thesis unchanged, accelerating WS and retail margin upside to drive multiple expansion," Post said.

The analyst said AWS growth of 17.2% beat his estimate of 16% growth with AI revenue taking over as a growth driver. The segment saw a 37% profit margin, which was its highest since inception, Post noted.

"In our view, a major positive from the call was CEO commentary that margins can continue to expand while Amazon invests."

Mizuho on Amazon: Soft guidance in retail and accelerated growth for AWS were two key themes from the report for Lee.

"For AWS, cost optimizing is largely behind, with increased demand in AI and migration," Lee said.

The analyst said implied retail revenue guidance is below Street estimates with uncertainty over Europe. Concerns about margins with heavy investment is another area that could concern investors, the analyst noted.

"We maintain Amazon as a top pick and believe AWS is structurally well-positioned long-term on accelerated cloud migration due to Gen-AI."

Piper Sandler on Amazon: The first quarter from Amazon showed "strong all-around results," Champion said.

The analyst highlighted the AWS growth and generative AI being a tailwind for the company.

"We were most impressed with AWS op margins at close to 38%, the highest in our model," Champion said.

Risks for the analyst include slower consumer spending and e-commerce growth along with competition in the e-commerce space.

Goldman Sachs on Amazon: Strength in margins and AWS revenue were highlights from the report for Sheridan.

"Two areas of increased focus coming out of earnings will likely remain 1) the health of the global consumer (given comments of weakness in Europe) and 2) open questions on how Amazon management will remain committed to a mixture of growth investments and margin progression in the coming years," Sheridan said.

The analyst sees Amazon having solid revenue growth and operating margin expansion in the coming years as the company makes investments in "long-term growth initiatives."

"We see Amazon as well positioned for future outperformance."

Needham on Amazon: Margin upside for Amazon will be driven by AWS and advertising, Martin said in a new investor note.

"Amazon's margins are structurally expanding because its highest margin businesses, advertising and AWS, are growing fastest," Martin said.

The analyst said Amazon is a "services company, not a product company." Martin said services revenue for Amazon have been higher than its product sales for the past 10 quarters and the gap continues to widen.

"We believe that AMZN should be valued as a Services company rather than a Products company."

Roth MKM on Amazon: The e-commerce giant could be a "cash flow turnaround case study," Kulkarni said after the first quarter report.

The analyst said the first quarter results were impressive with revenue and operating income coming in ahead of estimates.

"AWS is now a $100 billion ARR software company, and both North America and International Retail margins turned positive for the first time since peak pandemic days," Kulkarni said.

The analyst said Amazon could generate over $60 billion in free cash flow in 2024, even with higher investments in AI initiatives.  

"Is Amazon likely the biggest winner in AI? Possibly. Amazon has the most diverse tech footprint across any other mega cap with multi-billion revenue streams in e-commerce, advertising, subscriptions, online video, and cloud."

JMP Securities on Amazon: Trends for the e-commerce company look "resilient," according to Jones.

The analyst said the first quarter saw strong net sales and operating income, with guidance slightly below consensus estimates.

"Amazon continues to make progress on improving the customer experience, recording the fastest delivery speed for Prime members ever," Jones said.

The analyst said advertising "remains in the early innings" for Amazon.

"AWS outperformed expectations with customer optimization headwinds having largely diminished, and the focus has shifted toward cloud migration and AI implementation."

Wedbush on Amazon: Operating income was a key highlight from the quarter for Devitt.

"Amazon has now reported operating income above the high end of its guidance range for five consecutive quarters and the company has a number of drivers for further margin expansion in place," Devitt said.

The analyst said commentary from management was also positive for margins going forward.

Devitt said investors are likely reacting to the softer guidance after the report, but the high-margin AWS and advertising businesses are well positioned for the second half of the fiscal year.

"We think the associated monetization opportunity is already contributing to AWS growth and should continue to do so with management expecting AI to generate tens of billions of revenue in the next several years."

AMZN Price Action: Amazon shares are up 1.71% to $177.99 on Wednesday versus a 52-week trading range of $103.15 to $189.77.

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