Amazon shares edged higher in early Tuesday trading after a top Wall Street analyst published a bullish note on the tech and retail giant ahead of its upcoming quarterly earnings report.
Amazon (AMZN) , which will publish third quarter earnings alongside a host of megacap tech names next week, has added around $400 billion in market value so far this year as one of the top-performing names of the so-called Magnificent 7 thanks in part to growth in its Web Services division and improving margins in its e-commerce unit.
Shares in the group have also rebounded from a modest September pullback after it won a partial victory over the Federal Trade Commission in a contentious antitrust case brought by Lina Khan by having a portion of the charges dismissed by federal judge John Chun.
However, the stock has yet to reach the levels its scaled prior to its second quarter update in August, when the group forecast its full-year capital spending plans at between $154 billion and $158.5 billion while issuing weaker-than-expected revenue growth.
Amazon CEO Andy Jassy told investor earlier this year and the tech giant is building a “substantial number of GenAI applications across every Amazon consumer business.”
Those issues are likely to remain key in next week’s update, according to a note published Tuesday by Goldman Sachs analyst Eric Sheridan, who reiterated his ‘buy’ rating and $230 price target on the group.
Goldman sees strong Q3 revenues
“We maintain our view that Amazon will deliver a strong mix of revenue growth and operating margin expansion over the long term, while continuing to invest in critical growth initiatives,” Sheridan and his team wrote.
“We remain convinced that investments to offer lower price points and expanded selection, including essentials, are sound long-term strategic decisions.
Wall Street forecasts suggest Amazon will post overall revenues of $157.2 billion for the three months ending in September, a 9.8% gain from the same period last year, with Web Services sales rising by around 19.2%.
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Amazon’s legacy e-commerce unit, meanwhile, will likely benefit from both a record Prime Day event in July, which saw sales rise 11% over the two-day period to $14.2 billion.
Amazon’s move earlier this summer to launch a grocery delivery subscription service, tied to its Prime membership base, will likely be the focus of questions for the group’s retail division when Jassy speaks to analysts after the first-quarter update.
The new plan will enable Prime members to pay $9.99 per month for unlimited delivery orders over $35 from Whole Foods Market and Amazon Fresh as it looks to challenge grocery delivery leaders such as Walmart (WMT) and Target (TGT) .
That should translate into a bottom line of $1.14 per share, according to Refinitv estimates, a 21.2% advance from last year’s levels.
Sherdian, however, thinks Amazon will need to offer more details on some of its less-visible divisions, such as its massive Project Kuiper satellite internet venture and its plans to close the gap between its Alexa assistant and Apple’s (AAPL) AI-infused Siri.
AI investment focus
CEO Andy Jassy told investors in April that the group is building a “substantial number of GenAI applications across every Amazon consumer business” that range from its AI-powered shopping assistant Rufus to an even more intelligent and capable Alexa, to advertising capabilities (making it simple with natural language prompts to generate, customize, and edit high-quality images, advertising copy, and videos).”
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Andrew Ng, who lead AI projects at Alphabet and Baidu, was also named to the Amazon board earlier this month as part of the group’s new investment drive.
“We believe non-core investments are growing, and any segment disclosure, especially around Devices & Services, would improve visibility on core profitability (similar to Alphabet’s Other Bets and Meta’s Reality Labs),” Sheridan said
Amazon shares were marked 0.25% higher in premarket trading to indicate an opening bell price of $188.00 each.
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