3 October 2025 | 12:11AM EDT Equity Research Amazon.com Inc. (AMZN) Framing the AWS Narrative (Growth + Margins) & Advertising Tailwinds as Underappreciated | AMZN | | --- | | 12m Price Target: $275.00 | | Price: $222.41 | | Upside: 23.6% | Ahead of Q3 earnings season and against the current backdrop of investor sentiment, positioning, and debates, we highlight AMZN as a preferred name among our large cap coverage. In this note, we frame the key investor debates around its AWS segment and the compounding ta ...

Core Viewpoint - Amazon.com Inc has shown a significant upward trend, with shares increasing over 40% since April and closing just under $230, marking an 8% gain since early August [1][5]. Technical Analysis - A pennant pattern has formed on Amazon's chart, indicating a period of consolidation with lower highs and higher lows, suggesting indecision between buyers and sellers [2][3]. - Professional traders often watch for pennants as they can precede strong breakouts, with Amazon currently testing the upper band of this pattern [3][4]. Fundamental Support - Amazon's fundamentals remain robust, consistently exceeding earnings expectations across its cloud, retail, and advertising segments, providing multiple growth avenues [6]. - Analysts maintain a positive outlook, with a 12-month stock price forecast averaging $262.87, indicating a potential upside of 14.73% from the current price [5][6]. Investment Strategy - Investors with a bullish outlook are advised to build an initial position while the stock consolidates, with plans to add more upon a confirmed breakout [8]. - A decisive breakout signal would be a strong upward movement through the upper line of the pennant, supported by high trading volume [9]. Price Targets and Breakout Potential - The initial target for a breakout is set at $235, with further potential reaching February's high around $240, and analysts suggesting a medium-term target of $300 [11]. - Current support is around $220, and a sustained drop below this level would necessitate a reassessment of the investment outlook [10].

Core Insights - Amazon reported stronger-than-expected second-quarter 2025 results, surpassing earnings and revenue estimates, but provided a cautious third-quarter operating income guidance, leading to an over 8% drop in pre-market trading [1][3][6] Financial Performance - Earnings per share for Amazon were $1.68, exceeding the Zacks Consensus Estimate of $1.33 and up from $1.23 year-over-year [3] - Revenues increased by 13% year-over-year to $167.7 billion, surpassing the consensus estimate of $162.3 billion [3] - Amazon's advertising business was the fastest-growing division, with ad revenues rising 23% year-over-year to $15.69 billion [4] - Online store sales grew 11% to $61.48 billion, while Amazon Web Services (AWS) revenues increased 17.5% year-over-year to $30.9 billion [4] Future Guidance - For the third quarter of 2025, Amazon expects revenues between $174 billion and $179.5 billion, with a Zacks Consensus Estimate of $173.13 billion [6] - The company anticipates operating income of $15.5 billion to $20.5 billion for the third quarter, which is below analysts' expectations [6] Investment in AI - Amazon has committed to spending up to $100 billion this year on artificial intelligence, focusing on building data centers and software, as well as investing in its own computer chips and those developed by NVIDIA [5] ETFs Exposure - Several ETFs with significant allocations to Amazon include: - Global X PureCap MSCI Consumer Discretionary ETF (GXPD) with 38.3% allocation to Amazon [2][7] - Fidelity MSCI Consumer Discretionary Index ETF (FDIS) with 24.2% allocation [2][8] - ProShares Online Retail ETF (ONLN) with 24% allocation [2][9] - Vanguard Consumer Discretionary ETF (VCR) with 23.9% allocation [2][11] - Consumer Discretionary Select Sector SPDR Fund (XLY) with 24.4% allocation [2][12]

Core Insights - Amazon's stock has risen over 150% from $85 in early 2023 to around $210, with potential to double in the coming years driven by AWS and AI [2][3] AWS and AI Growth - AWS is Amazon's most profitable segment, with revenue growth of 19% year-over-year in 2024 and 17% in Q1 2025, expected to remain in the high teens [3][5] - Amazon invested approximately $75 billion in capital expenditures in 2024, with expectations to exceed $100 billion in 2025, primarily for AI infrastructure [3][4] - AWS generated $108 billion in revenue in 2024, accounting for 17% of total revenues and approximately 40% of total EBITDA [5] Advertising Revenue - Amazon's advertising business reached $56.2 billion in 2024, a 20% increase year-over-year, with Q1 2025 revenue at $13.9 billion, up 19% [9][10] - The introduction of ads on Prime Video and extensive e-commerce data enhances targeting capabilities, providing a competitive edge [10] E-commerce Stability - The online stores segment generated $247 billion in annual revenue, representing 39% of Amazon's total business, providing consistent cash flow for growth investments [11] Path to Doubling Stock Value - For Amazon's stock to double, consistent growth across AWS, advertising, and e-commerce is essential, with projections of revenues exceeding $900 billion in three years and earnings doubling to over $10 per share [12][14] - Key growth drivers include AWS growth above 20%, advertising revenue reaching $80-90 billion annually, and improved operating margins from AI investments [13][15] Investor Sentiment and Valuation - The convergence of revenue scaling and profitability improvements from AI could lead to significant investor optimism, potentially allowing for premium valuation multiples [16]

Core Viewpoint - Amazon.com Inc. is experiencing a resurgence in focus and stock performance after a significant drop, with analysts increasingly bullish on its recovery potential [1][2][5]. Group 1: Financial Performance - Amazon has consistently outperformed earnings expectations throughout 2023, achieving its most profitable quarter on record in February, with revenue and operating income exceeding forecasts [3][4]. - The company has improved its margins by extracting more value from mature segments while investing in high-growth areas, contributing to its status as a reliable performer in the tech sector [4][11]. Group 2: Analyst Sentiment - Analysts maintain a positive outlook on Amazon, with a 12-month stock price forecast averaging $260.65, indicating a potential upside of 29.59% from the current price of $201.13 [5][6]. - Major firms have reiterated Buy ratings, with Loop Capital setting a price target of $285, suggesting a nearly 40% upside from recent closing prices [6][7]. Group 3: Technical Indicators - Technical indicators show a bullish trend for Amazon, with the stock's relative strength index (RSI) recovering from oversold levels, indicating renewed buying interest [8][9]. - The recent bullish crossover in the MACD signal suggests potential further upside, supported by strong closing prices in recent sessions [9]. Group 4: Valuation and Future Growth - Amazon's current valuation appears attractive, with a price-to-earnings ratio at its lowest in years, reflecting a disconnect from its strong earnings and operational discipline [10][11]. - The company's investments in AI, robotics, and logistics are expected to drive future growth, positioning it favorably compared to other mega-cap tech stocks [12].

Group 1: Market Overview - Equity markets have struggled in 2025 due to macroeconomic tensions, including trade wars initiated by President Donald Trump [1] - Ongoing market volatility presents opportunities to purchase shares of strong companies at lower prices [1] Group 2: Company Analysis - Amazon - Amazon is a leader in e-commerce and cloud computing, with significant growth opportunities in advertising and cloud services [9] - The company's advertising business has an annual run rate of $69 billion, up from $29 billion four years ago, while Amazon Web Services has a run rate of $115 billion [10] - Amazon benefits from a strong market position and high switching costs, creating a competitive moat [10] Group 3: Company Analysis - Bank of America - Bank of America is one of the largest banks in the U.S., offering a diverse range of products and services [11] - The bank's business is diversified across consumer banking and investment management, benefiting from switching costs that create a competitive moat [12] - Long-term growth in revenue and earnings is expected as the economy expands, making it a suitable addition for long-term investors [13]