Amazon’s (NASDAQ: AMZN) stock has taken a notable hit following a downgrade from Rothschild Redburn.
The firm lowered its rating on the e-commerce giant from ‘Buy’ to ‘Neutral’ and cut its price target to $250. The new target implies an increase of about 7% from AMZN’s last closing price of $232.
The downgrade was driven largely by a more cautious outlook on Amazon’s cloud division, AWS, which has long been a key growth engine for the company.
Rothschild Redburn analyst Alex Haissl noted that while AWS had previously outperformed expectations, the competitive landscape has shifted significantly.
Despite AWS’s recent reacceleration, Haissl said there is limited room for further upside, especially relative to market expectations.
Haissl also drew comparisons between Amazon and Microsoft (NASDAQ: MSFT), observing that while AWS remains a more integrated part of Amazon’s business than Azure is for Microsoft, the growing role of generative AI, an area both companies are heavily investing in, has introduced new challenges.
“AWS has reaccelerated broadly as we expected, leaving limited scope for meaningful upside relative to buy-side expectations. Moreover, Amazon now finds itself in a similar position to Microsoft: although AWS captures more value within the stack, generative AI remains dilutive to returns — and its share is increasing,” he said.
According to Haissl, generative AI is currently dilutive to returns, and its increasing prominence within AWS is adding pressure to the division’s profitability.
Wall Street remains bullish on Amazon
Despite the downgrade, Amazon continues to enjoy strong support from Wall Street. All 42 covering analysts maintain a ‘Strong Buy’ rating, with no ‘Hold’ or ‘Sell’ recommendations.
According to the latest consensus compiled by TipRanks, analysts see meaningful upside for the e-commerce and cloud giant, projecting an average 12-month price target of $296.64, representing a roughly 26.4% potential gain from the stock’s current value. Targets range from a conservative low of $255 to a high of $340.
Featured image via Shutterstock
