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There are four reasons to keep loving Amazon.com Inc.’s stock, according to one analyst, even as the name has run up more than 50% so far this year.
Roth MKM’s Rohit Kulkarni called Amazon
AMZN,
his top large-capitalization internet stock pick in a Monday note to clients, cheering opportunities related to margins, cloud computing, cost savings and artificial intelligence.
Don’t miss: Amazon may get a bad rap on AI, but Morgan Stanley says its proven strategy will win out again
“We believe the Street continues to under-estimate potential leverage via recent cost cutting, reductions in workforce, and logistics efficiency initiatives,” Kulkarni wrote. “And, we view [Amazon] as one of the biggest beneficiaries from stable commodity inflation, a stable global supply chain, and stable workforce compensation trends.”
He thinks that Amazon could show $9 billion to $13 billion next year in annualized savings, a trend that would benefit margins.
Kulkarni also sees the potential for Amazon to positively surprise Wall Street with the rate of expansion within its AWS cloud-computing business, noting that consensus expectations imply 9% to 10% revenue growth for the June and September quarters and low-teens growth in the December quarter.
“If management provides July data points implying a deviation vs. expectations, [Amazon] shares could react very positively,” he wrote, while lifting his price target to $155 from $130 and maintaining a buy rating on his “top pick.”
Shares could likewise get a boost from trends related to capital expenditures as Amazon balances savings from office-space initiatives with an expected uptick in AWS costs.
See also: Amazon’s stock could soar to $180 as analyst says Wall Street is ‘very wrong’ about key catalyst
“If 2023 turns out to be a peak in overall CapEx with a flattish 2024 CapEx trend,” Kulkarni said, the stock could move higher.
Finally, he notes the company might stand out with how it’s tackling AI.
“Investors think that [Amazon] has been quiet on the AI front as compared to other mega caps,” he wrote, but recent interviews and presentations “highlight that [Amazon’s] AI strategy feels like ‘AI Tech For Everyone’ vs. a somewhat closed approach from [Microsoft]
MSFT,
and [Alphabet]
GOOG,
Read: Amazon poised to ‘close the AI gap’ with rivals, says one of stock’s most bullish analysts
Kulkarni also likes shares of Facebook parent Meta Platforms Inc.
META,
and Google parent Alphabet Inc., ranking Meta as his No. 2 pick and Alphabet as his No. 3.
“We view all three mega caps to be significant medium-term beneficiaries from the ongoing [generative] AI wave,” he said.
More from MarketWatch: Alphabet’s stock fetches a downgrade as UBS sees a notable AI risk
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