On Wednesday, DA Davidson showed confidence in Amazon.com Inc's (NASDAQ:AMZN) growth potential, particularly in the area of general artificial intelligence (GenAI) capabilities. The firm increased its share price target on Amazon to $235 from $200 while maintaining a Buy rating.
The optimism stems from Amazon Web Services' (AW3S) ongoing investments in data centers and the development of custom chips, which are expected to support the next wave of growth driven by GenAI. Despite AWS currently lagging behind Microsoft (NASDAQ:MSFT)'s Azure in GenAI capabilities, the analyst believes that the market has not fully appreciated Amazon's potential to close the gap.
According to the analyst, AWS's rapid innovation in creating smaller models and custom chips places it in a strong position to enhance GenAI applications for its substantial customer base. Many AWS customers presently run their GenAI workloads on Azure, but the analyst anticipates that some would prefer to expand their existing services with AWS if it offered comparable GenAI solutions.
Further highlighting Amazon's strategic moves, the analyst pointed out the company's plans to vertically integrate with its own semiconductor technology, which could lead to a significant long-term cost advantage.
The recent investment in Anthropic, an alternative to OpenAI, is based on the expectation that Anthropic will use Amazon's Trainium and Inferentia chips for running its models. This follows a similar agreement with another leader in large language models, Mistral.
While Amazon is expected to continue purchasing NVIDIA (NASDAQ:NVDA) GPUs for the time being, the shift towards reliance on its proprietary chips is projected to yield a competitive edge in the future. This anticipated strategic advantage in the semiconductor space has contributed to DA Davidson's raised price target for Amazon's stock.
InvestingPro Insights
As Amazon.com Inc (NASDAQ:AMZN) positions itself to enhance its general artificial intelligence (GenAI) capabilities, its financial metrics and market performance offer additional context to DA Davidson's optimistic outlook. Amazon is currently trading at a high P/E ratio of 62.53, which suggests investor confidence in its future earnings potential, despite the high earnings multiple. This is further underscored by its impressive year-to-date price total return of 21.88%, reflecting strong market sentiment towards the company's growth prospects.
InvestingPro Tips indicate that Amazon is a prominent player in the Broadline Retail industry and has demonstrated a high return over the last year. The company's moderate level of debt and significant investments in technology, such as the development of custom chips for GenAI, could provide a competitive edge as highlighted in the article. Additionally, with a substantial market capitalization of $1930.0 billion USD and a robust revenue growth of 11.83% over the last twelve months, Amazon's financial health appears solid.
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