On Friday, Pivotal Research initiated coverage on Amazon.com (NASDAQ:AMZN) with a Buy rating and a price target of $260. The firm highlighted the company's extensive growth potential, particularly in its AWS cloud segment. According to the analyst from Pivotal Research, Amazon is expected to see its AWS revenue grow from the current 17% of total revenue to approximately 35% over the next five years.
The analyst also pointed to Amazon's e-commerce and fulfillment expansion into new segments and international markets, alongside the rapid growth of its advertising business, as key drivers for future revenue. Amazon's advertising business is currently the third-largest globally, trailing only Google and Meta (NASDAQ:META), both of which also have Buy ratings from the firm.
Pivotal Research further noted Amazon's proven track record in developing new, successful products and revenue streams. The firm believes that Amazon has the highest potential among its peers to significantly increase operating margins. This potential is attributed to the company's ability to scale operations, leverage robotics and artificial intelligence, and gain from a growing percentage of revenue from high-margin cloud computing and advertising services.
In addition, the valuation of Amazon's stock was considered attractive by Pivotal Research. The firm's positive outlook on Amazon is reinforced by the company's "deep moat" around its core businesses, which is underpinned by unmatched scale and a variety of avenues for organic revenue growth.
In other recent news, Amazon and tech giants including Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Meta have proposed an alternative power payment plan for data centers in Ohio, as a counter-proposal to utility company AEP Ohio's initial suggestion. The tech firms' proposal aims to establish a more equitable framework for power payments, accommodating the growing energy needs of data centers while addressing utility companies' concerns.
In a recent shopping event, Amazon's Prime Big Deal Days set a record for the largest October shopping occasion in the company's history, with Prime members globally saving over $1 billion. The event also saw a record number of new Prime sign-ups, reflecting the program's expanding reach.
Analysts from BMO Capital Markets and DA Davidson have maintained an Outperform and Buy rating on Amazon respectively, based on the company's logistics and operational capabilities. BMO's confidence is bolstered by Amazon's strategic move to eight regional networks and the implementation of the picking robot "Sparrow," while DA Davidson highlights Amazon's ongoing supply chain investments.
However, Amazon's involvement in a carbon offset credit deal has raised concerns among Indigenous organizations in Brazil, who claim they were excluded from discussions.
Lastly, Amazon has integrated Apple (NASDAQ:AAPL) TV+ into its Prime Video service in the US, marking a significant collaboration aiming to enhance the range of streaming content for subscribers.
InvestingPro Insights
Adding to Pivotal Research's bullish stance on Amazon, recent data from InvestingPro provides further context to the company's financial position and growth prospects. Amazon's revenue for the last twelve months as of Q2 2024 stood at an impressive $604.33 billion, with a robust revenue growth of 12.32% over the same period. This aligns with the analyst's expectations of continued expansion across Amazon's various business segments.
InvestingPro Tips highlight Amazon's status as a "Prominent player in the Broadline Retail industry," which supports Pivotal Research's view on the company's strong market position. Additionally, the tip noting that Amazon is "Trading at a low P/E ratio relative to near-term earnings growth" suggests potential undervaluation, echoing the analyst's sentiment on the stock's attractiveness.
For investors seeking a deeper dive into Amazon's financials and growth prospects, InvestingPro offers 11 additional tips, providing a comprehensive analysis of the company's market position and future potential.
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