Since hitting a yearly peak in mid-September, Amazon (NASDAQ:AMZN) shares have declined by 12%.
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That drop has taken place as several concerns have come to the fore. J.P. Morgan analyst Doug Anmuth says these include: “1) AWS growth given recently slowing 3P data; 2) state of the US consumer & retail; 3) increased competition; 4) rising fuel costs; 5) magnitude of holiday hiring; & 6) the FTC lawsuit.”
But Anmuth has an answer ready for each of these so let’s take a look at them.
The primary concern revolves around AWS growth, but Anmuth finds optimism in several key factors. He is encouraged by the moderation of optimizations, the introduction of new workload deployments, and the easing year-over-year comparisons expected in the latter part of the third quarter and certainly in the fourth quarter. Furthermore, he anticipates that starting next year, Gen AI will increasingly serve as a significant catalyst for AWS growth.
On the consumer issue, Anmuth acknowledges the presence of fluctuating trends and some market softness. However, he argues that the company’s targeted initiatives, such as same-day/1-day delivery (SD1D), increased spending by Prime members, and an extensive third-party (3P) selection, have the potential to bolster its growth, even in the face of a challenging retail landscape.
As far as the competition is concerned, while it’s true that TikTok, Temu, & SHEIN are all seeing their global reach expand, Amazon is primarily at risk here “at the low-end,” while generally it also targets a broad consumer base.
In response to the recent surge in fuel costs, Anmuth points out that Amazon has secured fixed prices for a chunk of its fuel procurement and also benefits from discounts based on the volume and throughput of its purchases.
Moving on to the fifth point, as Anmuth notes, investors might be concerned about the outlay associated with hiring, but the analyst sees the addition of 250,000 seasonal workers in the US as a “bullish sign for 4Q demand.”
Lastly, regarding the FTC lawsuit, Anmuth thinks the odds are stacked in Amazon’s favor. “We believe it will be challenging for the FTC to prove that AMZN illegally maintains monopoly power that blocks competition, inflates prices, degrades quality, and stifles innovation,” says the 5-star analyst. “In fact, we believe AMZN has done just the opposite of that in each case, ultimately advancing e-commerce to much higher levels of innovation, adoption, and service than we otherwise would have seen.”
All told, Amazon remains Anmuth’s ‘Best Idea overall’ and he recommends investors ‘buy the pullback in shares.’
Accordingly, the JPM analyst rates AMZN shares an Overweight (i.e., Buy), backed by a $180 price target, indicating room for ~42% growth over the coming months. (To watch Anmuth’s track record, click here)
That objective closely resembles the Street’s average target, which currently stands at $176.02, and implies shares will gain ~38% over the one-year timeframe. Barring one skeptic, all 40 recent reviews are positive, naturally making the consensus view here a Strong Buy. (See Amazon stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
