Amazon bulls defend long-term upside after AWS warning
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Amazon (NASDAQ:AMZN) stood in negative territory on Friday morning as investors and analysts took in the warning from the Seattle e-commerce giant that AWS customers are evaluating ways to optimize cloud spending due to the economic backdrop. April revenue growth rates were noted to be about 500 basis points below what the company saw in Q1 for the AWS business.
On Wall Street, Morgan Stanley analyst Adam Jonas reminded that the AWS optimization cycle is more than halfway over in the firm's view and the optimization headwinds will start to be lapped in August and September. Jonas said the long-term view on Amazon (AMZN) should be focused on AWS's ability to drive and benefit from the +$2.5T public cloud opportunity. Morgan Stanley kept an Overweight rating on AMZN and price target of $150 in place.
Evercore ISI said it is chalking up the moderating AWS growth to the vagaries of enterprise spend, especially among SMBs and start-ups. Analyst Mark Mahaney concluded that the Amazon long thesis is very well intact, especially with AI a factor. "The AI Revolution probably wonât be televised. It certainly wonât be on-prem. It will be in the Cloud, where AWS is the market leader," he noted.
Bank of America said it was encouraged with the retail progress and likely share gains and noted Amazonâs investment cycle history suggests room for more margin upside. A Buy rating and price objective of $139 was kept in place.
On Seeking Alpha, Investing Group Leader Michael Wiggins De Oliveira was less optimistic. He took the AWS comments to mean the company is lowering prices in a sign of weakness. He has a Sell rating on the view that Amazon (AMZN) is more cyclical than some investors would like to think.
During the Amazon earnings call, CFO Brian Olsavsky also warned on the overall uncertain economic environment with ongoing inflationary pressures continuing to be a factor. His thoughts were largely in line with what other retail sector CEOs and CFOs have been saying.
Shares of Amazon (AMZN) were down 1.48% in premarket trading after an initial earnings rally.
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