Rapid AWS Expansion and Increased Cloud Spending Signals Strong Outlook for Amazon: Analyst

Mizuho analyst James Lee reiterated a Buy rating on Amazon.com, Inc AMZN with a price target of $230.

Following Lee’s latest quarterly survey with a prominent AWS channel partner, he noted several promising developments. 

He said an accelerated sales cycle indicated by an increase in executive business center (EBC) meetings and early terminations of on-premises data center contracts; a significant shift in fiscal 2024 budgets towards infrastructure expenditure, hinting at a quicker migration to AWS; and an expectation for consumption to revert to traditional growth rates, suggesting a 20% year-over-year increase in AWS spending. 

Consequently, his confidence in AWS’s revenue growth accelerating into fiscal 2024 has strengthened, leading him to reiterate Amazon as his top pick.

Lee’s key findings include an accelerated sales cycle, evidenced by AWS customers arranging more EBC meetings involving senior executives (CEO, CFO, and CIO), which typically led to deals closing 30 days sooner than the usual sales cycle. 

Additionally, customers are exiting their on-prem data center agreements more rapidly through prepayments, showcasing an increased pace in migration and sales cycle velocity.

Lee’s survey also highlighted a budgetary shift towards infrastructure spending, increasing from 35% to 45%. 

This change is driven by AWS customers migrating significant data volumes into the cloud for long-term General AI deployment and upgrading existing cloud data to optimize for General AI through vectorized or unstructured data warehousing.

Furthermore, Lee’s survey indicated a surge in proof of concept (POC) projects for new use cases across various sectors, underscoring the effectiveness of AWS’s Bedrock service. 

This service facilitates access to large language models, including Anthropic’s Claude 3, and is vital in financial services, healthcare, and manufacturing.

Given these positive trends and a forecasted 20% year-over-year AWS spending growth—exceeding the consensus of 15%—Lee maintained Amazon as his Top Pick. 

The $230 price target is based on a 14x fiscal 2026 EBITDA multiplier, reflecting our anticipation of AWS continuing to outperform.

Lee projected first-quarter revenue and EPS of $141.09 billion and $0.82.

Price Action: AMZN shares traded higher by 3.10% at $185.56 on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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