AWS, Robotics, Prime Video Ads Fuel Amazon Growth Potential: Analysts

Wall Street analysts rerated Amazon.com Inc AMZN as the U.S. kicked in its earnings season last week.

Needham analyst Laura Martin reiterated a Buy rating on Amazon and a $250 price target.
BofA Securities analyst Justin Post maintained a Buy rating on Amazon with a price target of $255.

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Needham: Martin hosted a panel of prior Amazon employees during the Needham Growth Conference.

In answer to a question from the audience, the panelists agreed that Amazon CEO Andy Jassy is the right person to lead the company today. Amazon Web Services is both the present (i.e., high margins and high revenue growth rate) and the future (i.e., large language models and generative AI features, tools, and applications), they said.

They also agreed that Amazon’s strategy is shifting away from e-commerce and toward becoming the backbone of large language models, or LLMs. Jassy was the former founder and president of AWS.

Since Jassy became CEO, he has lowered the amount spent on long-term bets, such as the Fire Phone and Grocery, to improve near-term profitability and reallocate more resources toward AWS.

Amazon has a “debate and commit” culture. After everyone voices their disagreements, a decision is reached, and everyone commits. The downside of this culture is that challenging projects and problems never stop. If the old team cannot figure it out, new folks are rotated into that problem. Among all the panelists, they could only think of 2 projects that had ever been shut down. This inability to end risk-taking projects wastes time and resources.

Amazon has a rotational culture in which employees switch roles every 18-24 months. This rotation ensures fresh perspectives on every problem. It also redirects top talent to high-priority and difficult projects, but it risks talent burnout and high turnover rates.

One panelist argued that Amazon’s Delivery Service Partner (DSP) model, which relies on external contractors, may not be sustainable over time. Low control and high turnover among DSPs make it hard for Amazon to maintain operational excellence in last-mile delivery.

Retail operates on very thin margins, but operating efficiencies bolster its profitability over time.

Investments in automation and “hands-off-the-wheel” technology can improve margins in the future.

Ad Business is leading the industry in data collection and tying ad revenue to actual purchases on Amazon. They said it is the best Retail Media Network available today, and Martin agreed.

BofA Securities: Amazon outperformed the Nasdaq and e-commerce sector in 2024 (+44%, versus 25% for Nasdaq), aided by multiple expansions, with forward-year P/S growing to 3.1 times (versus 2.3 times at the start of 2024).

While AWS growth and Retail margin expectations have increased, Post noted AI-driven Cloud growth remains a top sector opportunity, while Retail Margin expansion can continue to drive outsized profit growth versus peers. Amazon is also relatively well positioned for the impact of US$ appreciation, which aids Cloud margins.

Post noted that the strong AI-demand cycle for AWS will drive upside in 2025. Further, Retail Margin efficiencies drive outsized profit growth for the company.

Amazon is a robotics play, which should drive a multi-year productivity cycle and reduce labor dependence, according to the analyst. The analyst also flagged a ramp in Prime Video ad dollars, further headcount cost savings from mid-level manager cuts, and online retail normalization as additional growth drivers for 2025.

Post slightly lowered his 2025 estimates for recent US$ appreciation. He lowered 2025 International Revenue by $7 billion (~5% of International revenue but just 1% of total), offset by slightly higher AWS margins. For fiscal 2025, Post estimates Revenue and EPS of $700 billion and $6.10, down from $707 billion and $6.13 prior.

Relative to large-cap peers, Post still expects more stable revenue growth in the first half of 2025 (with potential Cloud acceleration) and better margin expansion and noted Amazon as a relatively strong player in AI (Cloud revenues, robotics, R&D efficiencies).

Price Action: Amazon stock is up 2.35% at $231.25 at last check Tuesday.

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