The stock market is currently a world owned by the Mega Caps. The tech giants have been driving the gains, which have been concentrated mainly in a relatively small group of behemoth outperformers.
Is it time to shift away from these giants and explore other opportunities? Not necessarily, according to Wolfe analyst Shweta Khajuria. She believes that, at least in the case of one of the biggest names – Amazon (NASDAQ:AMZN) – staying the course is the right move.
“At a high level,” says Khajuria, “Amazon benefits from a) its leadership position in Retail, Digital Advertising, and Cloud Computing—three $1T+ market opportunities, b) differentiated value prop across each of these three verticals, c) exposure to new growth opportunities in Video, Groceries, fulfillment (Buy with Prime), Health Care, Project Kuiper, Amazon Business; and d) an experienced management team.”
Khajuria’s bull case is based on several themes. Increased consumption, price optimization, adoption of GenAI products, and long-term favorable trends are expected to drive accelerated revenue growth in AWS. Additionally, there should be significant margin expansion fueled by this growth, extended server lifespan, improved retail operating efficiency through reduced service costs, regionalization, ad revenue growth, and efficiency gains in international markets.
Furthermore, as Amazon benefits from a shift in consumer spending towards non-discretionary items and gains market share due to faster delivery times, retail share gains and ongoing consolidation of consumer spending towards the largest retailers can be expected.
Khajuria also emphasizes Amazon’s competitive strength in the AI sector compared to its rivals. While it may be early to declare a definitive leader, Amazon’s investments and focus on GenAI initiatives have sparked significant debate. Despite substantial investments from other Mega Caps like Google, Meta, and Microsoft, Khajuria believes Amazon’s GenAI capabilities will remain highly competitive. This competitiveness extends beyond AWS to Amazon’s Retail and Advertising sectors, driven by its scale, data advantages, aggressive AI investments, and proven track record in large language models (LLMs).
“Over the long term,” Khajuria expounded, “we expect to see Amazon benefit from its current AI investments (we estimate $71B in total CapEx this year, a significant portion of which is likely AI efforts) to drive Retail efficiencies, automation, fulfillment speeds, customer service improvements, and ad placements, in addition to expanding its product and feature suite at AWS (beyond Bedrock and Codewhisperer).”
With all this as backdrop, Khajuria initiated coverage of AMZN shares with a Buy rating and a Street-high price target of $250, suggesting shares will climb 36% higher over the coming months. (To watch Khajuria’s track record, click here)
The bull case for AMZN is reiterated by all of Khajuria’s colleagues; based on Buy recommendations only – 44, in total – the stock naturally claims a Strong Buy consensus rating. The average price target stands at $223.05, and factors in 12-month returns of 21%. (See Amazon stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
