Amazon.com Inc. is perhaps in an interesting spot when it comes to artificial intelligence.
On one hand, shares of the e-commerce and cloud-computing giant have ridden Wall Street’s AI wave significantly higher in recent months, as investors view the company’s AWS cloud business as a beneficiary of the buzzy trend. The thinking is that AWS could rack up increased usage as companies rush to train and run artificial-intelligence programs.
On the other hand, Amazon
AMZN,
“lags its megacap peers in generative AI capabilities today,” Jefferies analyst Brent Thill wrote Wednesday. Generative AI is the type of AI that burst into public consciousness thanks to OpenAI’s ChatGPT, and it allows for the creation of content.
With shares up nearly 50% so far this year, what should investors make of that split backdrop? Thill says not to sweat Amazon’s relative deficiencies.
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The opportunity around AI “remains early, and we expect AMZN’s rich history of innovation will help them close the AI gap over time,” Thill wrote, as he lifted his price target on Amazon’s stock to $150 from $135. He’s now among a few analysts with a $150 target, which is the third highest listed on FactSet.
AI sentiment “will help AMZN shares to re-rate,” in his view, meaning that Wall Street could come to assign the stock a higher multiple.
He’s also upbeat about the company’s profit potential. Amazon “continues to improve profitability through cost rationalization and improved efficiency,” and this could bring 2023 operating margins up to 3.9%, compared with 2.4% in 2022.
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“We expect increased cost efficiencies will continue to drive the margin recovery and support positive operating income estimate revisions through 2024 as AMZN grows into its overbuilt logistics capacity,” Thill wrote. “Further, we anticipate AWS growth will reaccelerate in [the fourth quarter] as budgetary constraints and cloud cost optimization headwinds fade, further improving investor sentiment.”
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