On Thursday, MoffettNathanson reiterated a Buy rating on shares of Amazon.com (NASDAQ:AMZN), with a steady price target of $246. The firm's stance comes amid contemplations on the future capital expenditures (capex) of Amazon Web Services (AWS), particularly regarding the potential impact of artificial intelligence (AI) demand on AWS's investment cycle.
The firm acknowledges the challenges in predicting the duration of AWS's investment cycle, especially concerning the peak of capital spending for AWS. Even with these uncertainties, the firm finds it easier to estimate the implications of higher capex on the company's depreciation and amortization (D&A).
Under their aggressive base case scenario for AWS spending, they forecast an increase in D&A of property, plant, and equipment (PP&E) from $30 billion in the fiscal year 2023 to $32 billion in 2024, with a more significant jump to $40 billion in 2025. By the fiscal year 2027, D&A is expected to effectively double from the fiscal year 2023 to $59 billion.
The analyst views the incremental investments in AWS positively, noting that 2023 marked a significant shift in Amazon's spending patterns. For the first time in the company's history, AWS capex surpassed that of the retail segment. This shift is seen as a favorable trend, as AWS's investment model is driven by demand signals, which are indicative of potential future revenue growth and improved margins.
Furthermore, the firm anticipates leverage in Amazon's retail business, projecting a decrease in capital intensity within the retail segment through 2027.
The commitment to the Buy rating and the $246 price target reflects confidence in the strategic allocation of Amazon's investments and the anticipated benefits to the company's financial performance.
InvestingPro Insights
In light of MoffettNathanson's positive outlook on Amazon.com (NASDAQ:AMZN), current metrics from InvestingPro provide additional context for investors considering the tech giant's financial health. Amazon's market capitalization stands at a formidable $1.91 trillion, underscoring its massive presence in the market. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is at 50.18, suggesting investors are willing to pay a premium for its earnings potential. This aligns with the high earnings multiple noted in one of the InvestingPro Tips, which indicates the market's high expectations for Amazon's future profitability.
Revenue growth remains robust, with the last twelve months as of Q1 2024 showing a 12.54% increase, signaling continued expansion in Amazon's business operations. Additionally, the company's gross profit margin at nearly 47.59% reflects its ability to maintain profitability despite the scale of its operations. With a substantial EBITDA of $96.61 billion and an EBITDA growth of 66.24% for the same period, Amazon demonstrates strong earnings before interest, taxes, depreciation, and amortization, which is a key indicator of its financial performance.
For those seeking a deeper dive into Amazon's financials and future prospects, InvestingPro offers additional insights. With 23 analysts revising their earnings upwards and predictions of profitability this year, coupled with a high return over the last year, Amazon appears to be on a solid trajectory. To explore more about Amazon's financials and for further InvestingPro Tips, visit https://www.investing.com/pro/AMZN. Interested investors can also take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to an extensive array of financial analysis tools and data.
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