Why Wall Street Analysts Are Bullish on Amazon's Stock Performance in 2024
In the first few days of 2024, Wall Street has shown a significant amount of favor towards a major technology giant. Analysts have named $Amazon(AMZN.US$ as their top pick. This is due to a resurgence in its web services division, an increase in advertising spending, and Amazon's sustained growth through generative artificial intelligence.
We see most upside for AMZN among our large caps into '24," wrote Piper Sandler's Thomas Champion. "Retail margins have improved significantly and we still think Street op income looks conservative into '24 on incremental numbers."
Amazon's $5 Billion Boost From Prime Video
$Bank of America(BAC.US$ predicts that Amazon's expansion into video advertising, specifically through new television-style commercials on Prime Video, will generate up to $5 billion in annual revenue. Ads will start appearing in North America on January 29th and internationally on February 5th.
According to analyst Justin Post, Amazon is expected to make $3 billion in video ad sales this year. In addition, Amazon will generate an extra $1.8 billion from Prime subscribers who choose to pay the extra fee to avoid commercials. This estimate is based on the assumption that 70% of Prime subscribers will choose to watch ads instead of paying the fee.
In the quarter that ended on September 30, Amazon's advertising business, which mainly consists of search and display ads on its web store, generated $12.1 billion, making up approximately 8.5% of total revenue. Amazon views Prime Video as a prime opportunity to increase ad sales and profit from the billions it has invested in content, such as movies and National Football League games.
Amazon's AI Edge
Although Amazon was perceived to have lagged behind its mega-cap peers in AI advancements last year, the company's cloud unit released its own AI model training chip in November. This development is viewed by D.A. Davidson's Gil Luria as a strength that reduces Amazon's reliance on dominant chipmaker $NVIDIA(NVDA.US$.
While we expect $Microsoft(MSFT.US$'s Azure to grow faster than AMZN in 2024, we believe from an absolute dollar standpoint AWS may continue to make similar gains," he wrote. "AWS will remain the largest hyperscaler and eventually close the gap to Azure in GenAI capabilities, leveraging an investment in Anthropic and longstanding investments in custom silica."
According to $Wells Fargo & Co(WFC.US$'s Ken Gawrelski, enterprise AI may not fully materialize for Amazon until 2025 or 2026. Nevertheless, Gawrelski predicts that it could make up 7% of total AWS revenues in 2024. Additionally, he sees a potential upturn in AWS growth to 17% after a bottom in 2023 as another positive development for Amazon in the new year, beyond AI and advertising spending.
Source: Bloomberg, CNBC
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