Image Source: Pixabay

Tech stocks have been the main victims of the broader market sell-off this year. The list includes e-commerce giant Amazon. Apart from macro headwinds, concerns about slowing top-line growth and cost pressures also weighed on the stock. Amazon shares are down 34.3% and are trading nearly 42% off their 52-week high. As the Fed continues to raise interest rates to curb rampant inflation, it will be difficult for Amazon to stage a recovery. However, Wall Street analysts continue to be bullish on the company’s long-term prospects, particularly for Amazon Web Services.

Amazon expects second-quarter net sales in the range of $116 billion to $121 billion. This implies an increase of 3% to 7%. The outlook reflects a potential slowdown from 7% growth in the first quarter. After seeing the extraordinary demand for e-commerce in the early days of the pandemic amazon is feeling the effects of moderation in online shopping since the economy reopened.

The firm also faces higher fuel and labor costs and supply chain issues. Amazon’s e-commerce sales are likely to come under pressure due to slowing consumer spending driven by high inflation. However, AWS’s cloud computing business still looks attractive. In the first quarter, AWS sales increased to $18.4 billion, a total of 37%. The division’s operating income rose 57% to a total of $6.5 billion.
 

Amazon Plans

The AWS distribution is to capture more business. It will also strengthen its position as more and more enterprises move their workloads to the cloud. Recently, an analyst at UBS cut his price target on Amazon shares from $209 to $167. It cited “certain risks” to the financial outlook in the current macro environment. Despite lowered revenue estimates for 2022 and 2023, the long-term outlook remains optimistic. There are risks to the consensus earnings and operating income outlook in the near term. However, for investors with a longer time horizon, the current risk/reward looks compelling.

Margins are expected to improve in 2023. The company will reduce performance and reduce logistics capacity. It also expects Amazon to benefit from continued reductions in COVID-related costs and the benefits of Prime price increases and fuel surcharges. Most other analysts who cover Amazon stock are also bullish on the stock, with a strong buy consensus rating. This supports 37 purchases against one suspension. Amazon’s average price target of $177.58 implies a 62.08% upside potential from current levels.

The firm’s dominant position in e-commerce, a strong outlook for its profitable AWS business, and solid fundamentals bolstered Wall Street’s bullish stance on the stock. However, macro challenges may continue to weigh on near-term performance. The firm earns nine out of 10 on the TipRanks Smart Score system, meaning the stock is likely to outperform the broader market.

More By This Author: