Is there ever a bad time to invest in Amazon (AMZN)?
Investors love the Internet giant for its e-commerce domination, growing advertising business, and line of consumer products that is creeping towards iPhone-like domination in the home. But what makes Amazon great isn’t necessarily only what people see — it’s business-focused Amazon Web Services segment is the profit-making catalyst behind all of the company’s ambitious products and services. AWS actually generated more profit than Amazon’s North American segment, even though AWS is $100 billion (revenue) smaller than NA.
Oppenheimer’s top-ranked analyst Jason Helfstein sees “new use cases [in AWS] driving enterprise cloud adoption,” as he maintains his Outperform rating while raising his price target to 2,085, from $1,780.75.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Helfstein has a yearly average return of 18.2% and a 65% success rate. Helfstein has an average return of 94% when recommending AMZN stock and is ranked #60 out of 5,222 analysts.
For Helfstein, cloud is the driving force for Amazon’s stock to go even higher than it already is, with its AI capabilities separating the service from the pack. The analyst says, AWS’ “productivity improvements and revenue generation enabled by AI will force competing enterprise adoption to keep up with competitors, driving accelerated cloud growth.” Helfstein believes this is attractive for customers as the “AI runs best on cloud because providers have the applications (driven by massive R&D dollars), while data storage and transport are relatively cheap on the cloud,” for the majority of enterprises.
Helfstein is not only bullish on cloud from a large and established customer point of view, but looking at it from a developer and startup angle. The analyst says, “AWS is the preferred cloud of startups and developers, [with] spending increases at startups from 5-7 years ago…maturing.” He cites Pinterest and Lyft as examples of now-mature startups that are spending large on AWS.
From a financials point of view, Helfstein says, “higher asset utilization (aided by new serverless and other new cloud technologies) and moving up the stack to high-margin incremental revenue will drive strong margin expansion over the next five years.” The analyst estimates AWS EBIT to improve to 33% in 2023 (28% in 2018).
All in all, there is no arguing that Wall Street loves Amazon. TipRanks analysis of 36 analyst ratings on the stock shows a Strong Buy consensus, with 35 analysts recommending Buy and only one saying Hold. The average price target among these analysts stand at $2,125.16, representing a 17% upside. (See AMZN’s price targets and analyst ratings on TipRanks)