E-commerce giant Amazon (NASDAQ:AMZN) is expected to experience some ups and downs across its different segments this year, particularly in its crucial cloud computing unit, AWS, where investment firm Baird expects margins to fall. Five-star analyst Colin Sebastian predicts that AWS margins will drop to around 30% due to higher operating expenses for new data centers and infrastructure, along with an increasing mix of lower-margin GenAI workloads.
He notes that these GenAI workloads aren’t yet significantly boosting revenues and projects AWS revenue growth in the mid-to-high teens from 2024-27.
On the flip side, retail margins, when excluding advertising, are expected to return to low-single-digit growth over the next two years. Sebastian forecasts North American retail margins will reach 4% in 2023 and about 10% by 2027. International retail is also anticipated to achieve sustained profitability in the next two to three years.
Nevertheless, even with falling AWS margins, Amazon’s strong growth in advertising could cause its overall operating margins to improve and potentially lead to earnings per share figures that exceed estimates. In fact, advertising margins are expected to be around 50% to 60% and will be driven by solid growth from pricing and video ads.
It’s worth noting that, so far, Sebastian has enjoyed a 69% success rate on AMZN stock, with an average return of 20.29% per rating.
Is AMZN Stock a Good Buy?
Overall, analysts have a Strong Buy consensus rating on AMZN stock based on 42 Buys assigned in the past three months, as indicated by the graphic below. After a 43% rally in its share price over the past year, the average AMZN price target of $221.55 per share implies 18.59% upside potential.
