Tech giant Amazon (AMZN) has been under pressure ever since its earnings report last week. This is because analysts are beginning to worry about its position in the AI market, especially in its cloud business, Amazon Web Services (AWS). Although the company’s recent earnings met expectations, AWS revenue grew by 17.5% year-over-year to $30.9 billion, which is a pace that has stayed about the same for several quarters. Meanwhile, Microsoft’s (MSFT) Azure cloud grew 26% to $29.9 billion, and Google (GOOG) Cloud jumped 32% to $13.6 billion.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Unsurprisingly, analysts say that Microsoft’s partnership with OpenAI is a major reason for its faster growth in AI cloud services. Indeed, four-star analyst Tom Forte from Maxim Group explained that Amazon’s investment in Anthropic, a smaller competitor to OpenAI, hasn’t had the same impact yet. Nevertheless, five-star analyst Brad Erickson from RBC Capital thinks that Amazon’s Bedrock platform, which offers several AI models instead of just one, could attract more developers who prefer flexibility. This could help Amazon over time, but analysts warn that the benefits aren’t showing up in its results yet.
It is also worth noting that Amazon is spending heavily to catch up. In fact, it invested $31 billion in the second quarter, up from $24.3 billion in the first, to build AI chips, data centers, and other infrastructure. Even so, CEO Andy Jassy admitted that AWS is facing power shortages and server production delays. In addition, analysts added that many customers are only testing AI tools right now instead of fully using them, which is leading to slower revenue growth. As a result, while experts are positive about Amazon’s long-term strategy, they say the company needs to prove that these big investments will boost AWS growth back toward 20%. Otherwise, its stock could stay under pressure.
What Is the Price Target for AMZN Stock?
Turning to Wall Street, analysts have a Strong Buy consensus rating on Amazon stock based on 43 Buys and one Hold assigned in the past three months. Furthermore, the average AMZN stock price target of $264.21 per share implies 23.4% upside potential from current levels.
