Amazon Stock Set to Soar: Jefferies Raises Price Target to $235 Amid AWS and Advertising Boom
In a bullish move, Jefferies analysts have raised their price target for Amazon (NASDAQ: AMZN) to $235 per share from $225, highlighting robust growth in Amazon Web Services (AWS) and the company’s burgeoning advertising sector.
Key Insights from Jefferies' Analysis
Jefferies reiterates a BUY rating on Amazon, emphasizing that sustained momentum in AWS and Advertising, coupled with retail operational leverage, could drive an 18%+ upside to their sum-of-the-parts (SOTP)-based $235 price target (PT).
AWS and Advertising: The Growth Engines
The report underscores the significant contribution of high-growth, high-margin segments—AWS and Advertising—to Amazon’s overall valuation. Remarkably, 71% of Amazon’s $2.5 trillion SOTP Enterprise Value (EV) stems from these segments, compared to just 26% from its core retail business.
AWS Growth Forecast
Jefferies anticipates AWS revenue growth will accelerate from 13% in Q4 2023 to 21% in Q4 2024, driven by diminishing cost optimization headwinds and increasing demand for cloud modernization to leverage next-generation Artificial Intelligence (AI).
Advertising Sector Projections
The advertising sector continues to be a bright spot. Jefferies projects stable 20%+ growth, with additional potential from Prime Video. They estimate $2.9 billion in ad sales and approximately $800 million in incremental subscription sales (from ad-free opt-ins) from Prime Video in 2024, translating to a net sales increase of $3.7 billion.
Core Retail Business and Valuation
Even Amazon’s core retail business shows promise, with a focus on better efficiency driving higher margins. Jefferies highlights Amazon’s attractive valuation, noting that it trades at 13.6x CY25E EV/EBITDA, representing a ~25% discount to its 10-year average of ~18x.
Supporting Views from Needham & Company
Elsewhere, analysts at Needham & Company maintained a Buy rating and a $205 price target on Amazon after discussions with a former Amazon advertising salesperson. They pointed to factors such as evolving media metrics, Amazon’s ad tier, and its extensive data synergies with AWS as positive indicators for the company’s future.
Breaking It Down: What This Means for You
- Amazon Stock Potential: If you’re an investor, Jefferies’ revised price target suggests significant upside potential for Amazon stock, driven by high-growth segments like AWS and Advertising.
- AWS Growth: For those interested in the tech space, AWS is expected to accelerate its growth, particularly with advancements in AI and cloud technology. This could make Amazon an even more dominant player in the cloud services market.
- Advertising Revenue: The advertising sector is another gold mine for Amazon, especially with the integration of Prime Video. This could lead to substantial revenue increases, making Amazon a more attractive investment.
- Core Retail Efficiency: Even the core retail business is becoming more efficient, which means higher margins and better profitability for Amazon.
- Valuation: Amazon’s current valuation is attractive compared to its historical average, suggesting it might be a good time to invest.
In Layman's Terms
If you're looking to invest in Amazon, now might be a great time. The company is not just about selling products online; its cloud services (AWS) and advertising are growing rapidly. These areas make up most of Amazon's value and are expected to continue growing. Even its retail side is getting more efficient and profitable. Analysts think Amazon stock could go up by at least 18%, and it’s currently cheaper than it has been on average over the past decade. So, buying Amazon stock could be a smart move for your financial future.