Amazon.com Inc (NASDAQ:AMZN) stock has surged 38% year-to-date, bolstered by enhanced profitability, emerging AI opportunities, and indications of an Amazon Web Services (AWS) recovery, putting its upcoming 3Q earnings firmly in the spotlight.
However, the e-commerce giant's stock traded lower ahead of its earnings report on Thursday, down 1.8% at US$119.20.
Analysts are expressing optimism about Amazon (AMZN) as the company continues to demonstrate robust performance and the potential for cloud growth. Jefferies, in particular, maintains a Buy rating with a price target (PT) of $175, signifying a 37% upside at the time of writing.
Amazon is expected to report revenue growth of 11.3%, reaching $141.5 billion, alongside an earnings per share (EPS) of $0.58. Looking ahead to 2023, the company anticipates a substantial increase in revenue, from $514 billion in the previous year to $570 billion.
Furthermore, the annual profit is projected to rise to $2.23 per share, a remarkable improvement compared to the previous year's loss of $0.27 per share.
For the third quarter, consensus estimates indicate a stable 11% sales growth as operating margin improves by 350 basis points year-on-year to 5.5%. The execution of margin improvement and evidence of AWS stabilization are deemed vital for driving the stock forward.
That said, Jefferies sees room for ongoing margin enhancement that could further boost Amazon's shares. The company has consistently surpassed the midpoint of operating income guidance over the last 11 quarters, with an average beat of 86%.
Cloud acceleration
The gradual reduction of cloud optimization hurdles and increasing demand for artificial intelligence (AI) are anticipated to drive a forthcoming cloud acceleration. Analysts believe that AWS Net Sales expectations have reached their lowest point and expect positive estimate revisions as cloud cost optimization challenges subside, with AI-driven workloads supporting new migrations.
Amazon's Prime Big Deals Days event, held in October, exceeded last year's performance. Prime members ordered over 150 million items from independent sellers on Amazon's store, up from the previous year's 100 million.
While Jefferies remains optimistic about Amazon's long-term prospects, UBS takes a cautious stance for the short term. UBS sees potential headwinds for Amazon in the lead-up to its 3Q results, particularly in AWS and retail revenue.
Despite these near-term concerns, UBS maintains a Buy rating and a price target of $178, reflecting its confidence in Amazon's medium-term outlook.